What the Senate Jobs Bill Means for Education

Yesterday the U.S. Senate passed its version of what has come to be known as the “Jobs Bill,” called the Hiring Incentives to Restore Employment Act. The House of Representatives passed its version of the bill (H.R. 2847), called the Jobs for Main Street Act, in December with significant provisions for education. What does the Senate’s bill mean for education? Initial analysis suggests not much.

The largest provision of the Hiring Incentives to Restore Employment Act is a tax incentive program for businesses that hire previously unemployed workers. The provision would allow businesses to forgo paying Social Security payroll taxes on salaries of previously unemployed workers in 2010. Additionally, if these businesses keep the new employee on for a year, they will receive a $1,000 tax credit.

Unfortunately, the bill prohibits any “instrumentality” of the federal or state government from benefiting from the tax credit provisions. This means that K-12 public schools cannot participate. However, the bill does specifically state that public institutions of higher education can participate in the tax credit programs. But at this point, it’s impossible to tell if these incentives will be enough to encourage an increase in hiring at these currently cash-strapped institutions.

Additionally, the Senate bill does attempt to make existing tax credit bond programs, including those aimed at school construction, more attractive to investors. The provisions affect the two programs created or expanded under the American Recovery and Reinvestment Act (ARRA): the Qualified School Construction Bonds (QSCBs) and Qualified Zone Academy Bonds (QZABs). It does so by providing an “issuer allowed refundable credit” for the bonds, a benefit previously only allowed for Build America Bonds.

Currently, the QSCB and QZAB programs allow schools and school districts to finance school renovation and modernization by providing income tax credits to bond investors in lieu of interest payments. This means that while schools and districts would still have to pay the bond principle, the federal government would cover the interest through income tax credits.

The Senate bill would instead provide a payment directly to the school or school district that issued the bond worth up to 65 percent of the interest the schools owes on the bond. This credit can then be passed on to the holder of the bond – typically a bank or other financial institution – as an interest payment.

Unlike the existing income tax credits provided in the ARRA, the credits are refundable. In other words, bond holders that do not owe taxes, or whose income tax credits exceed the amount of taxes they owe, can use issuer allowed credits as subsidies, rather than tax credits. In theory, the move to make the tax credits refundable will make QSCBs and QZABs more attractive to investors. Under the current bond programs, investors must owe federal taxes for credits to have any value. The proposed changes mean that investors could still receive the interest payments even if they do not have federal taxes to offset.

Other than that, the only mentions of education in the Senate bill include a one-year extension of expiring tax benefits including: the tax deduction for classroom expenses that K-12 teachers may claim; the above-the-line income tax deduction for college tuition and other expenses; and the enhanced charitable deductions for educational donations.

Compared to the House’s Jobs for Main Street Act, which includes $23 billion in state aid for education jobs similar to the State Fiscal Stabilization Fund, the Senate bill is weak on education. In fact, it provides no direct funding for education services at all. Given the current state of education budgets across the country, this probably comes as a shock to many Governors and state education officials. Many of them are banking on additional federal funds to help them patch on-going budget holes and keep schools running.

Now the House and Senate need to reconcile the two different bills in conference committee before they can be sent to the president for his signature. Will conference committee negotiations produce a final bill that includes direct funding for education jobs? We will know soon.