Plan funds schools without land sales

WASHINGTON – Two Democratic senators said Thursday they have found a way to pay for a program to fund rural schools without selling 300,000 acres of national forests, as the Bush administration has proposed.

Sens. Max Baucus of Montana and Ron Wyden of Oregon said their plan would raise $2.6 billion over the next 10 years for the rural schools program by closing a tax loophole they said allows some government contractors to avoid tax obligations.

The bill is intended to circumvent a controversial Bush administration plan to sell 300,000 acres of Forest Service lands to raise about $800 million for rural schools in 41 states.

Lawmakers from both parties have denounced the plan, saying the permanent loss of public lands isn’t worth the short-term gain to schools.

They also say it wouldn’t raise enough money to help rural governments pay for schools and other services.

The proposal by Baucus and Wyden would provide a steady revenue stream for the rural schools program, commonly known as the county payments law, by closing a tax loophole in federal contracts, Baucus and Wyden said.

Under current law, the federal government does not withhold taxes owed by federal contractors. The Democratic plan would withhold 3 percent upfront of federal payments for goods and services delivered by private contractors.

The money would be applied to taxes owed by the contractor, which in most cases far exceed 3 percent of their total contract. If the tax obligation is less than 3 percent, the contractor would be reimbursed, a Baucus spokesman said.

“This is not a new tax. It just makes sure we get the payments” from federal contractors, said Baucus spokesman Barrett Kaiser.

Wyden, who co-sponsored the original rural schools law in 2000, said rural communities throughout the country rely on the payments.

“We cannot abandon them, and this legislation finds a fiscally responsible way of extending this successful law,” Wyden said.

Dave Tenny, deputy undersecretary of Agriculture, said he had not seen the Democratic plan and could not comment.

A spokeswoman for Senate Finance Chairman Charles Grassley, R-Iowa, could not be reached Thursday.