Sponsors (2)
The bill makes it cheaper and faster for states and localities to finance school construction through expanded tax-exempt advance refunding bonds—accelerating school improvements—but does so at the expense of federal revenue and with added compliance and implementation risks for issuers and taxpayers.
State and local school districts can issue tax-exempt advance refunding bonds to finance 100% of public school construction or rehabilitation, lowering borrowing costs so districts can fund more or faster school improvements without raising local taxes.
Clarifies an anti‑abuse rule to limit arbitrage-driven refunding transactions, helping protect federal tax revenue from abusive financings.
Expanding tax-exempt status for more advance refunding bonds reduces federal tax revenue, which could increase deficits or shift costs onto taxpayers.
New and more complex anti‑abuse tests increase compliance and administrative costs for state and local issuers and may require greater IRS oversight or litigation to interpret.
Issuers that structure complex financings to meet the 100% proceeds test may still encounter financing constraints or legal disputes that delay school projects and their expected benefits.
Based on analysis of 2 sections of legislative text.
Allows certain advance refunding municipal bonds to be tax-exempt when all proceeds finance public school facility projects while excluding arbitrage-abusive issues.
Official title: To amend the Internal Revenue Code of 1986 to allow certain advance refunding bonds for public school districts to be tax-exempt.
Introduced February 13, 2026 by Wesley Bell · Last progress February 13, 2026
Allows certain advance refunding bonds issued by states and local governments to be treated as tax-exempt when all project proceeds finance construction, rehabilitation, repair, or land acquisition for public school facilities, while excluding refunding transactions that create a material arbitrage-based financial advantage. The change amends the Internal Revenue Code to expand tax-exempt financing for public school capital projects and adjusts the tax timing rule for the initial temporary period for these bonds; it applies to advance refunding bonds issued after enactment.