[Congressional Record Volume 141, Number 146 (Tuesday, September 19, 1995)]
[Senate]
[Pages S13842-S13865]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. BAUCUS:
  S. 1259. A bill to authorize the Secretary of Agriculture to use 
stewardship contracting in a demonstration program to restore and 
maintain the ecological integrity and productivity of forest ecosystems 
to insure that the land and resources are passed to future generations 
in better condition than they were found; to the Committee on 
Agriculture, Nutrition, and Forestry.


       the forest ecosystem stewardship demonstration act of 1995

 Mr. BAUCUS. Mr. President, I introduce the Forest Ecosystem 
Stewardship Demonstration Act of 1995. On May 18, 1995, my colleague 
from Montana, Congressman Pat Williams introduced this bill which would 
allow the experimental use by the U.S. Forest Service of a variety of 
stewardship contracts on private land.
  About a month ago I held a meeting in Kalispell about the Forest 
Stewardship Demonstration Act of 1995. The meeting was attended by 
loggers, environmentalists, and timber landowners. I received input 
from many individuals, businesses and organizations, including the 
Montana Wilderness Association, the Montana Logging Association, 
Flathead Audubon Society, the Montana Wilderness Association and the 
Flathead Economic Policy Center. I was pleased to see people from all 
walks of life joining together to find common ground on what is usually 
a divisive issue and reach a consensus on a sound land-management 
program for a section of private property near Columbia Falls. The 
stewardship plan, created by the Flathead Forestry Project, emphasizes 
forest management strategies that will allow contracts to be written 
with enough flexibility and diversity to accommodate each system's 
needs.
  This bill does not add red tape; does not reduce competition; and 
does not eliminate any existing public participation processes or 
environmental laws. Instead, this bill allows public forest owners and 
resource managers to directly selected qualified forest contractors. 
This new contract format allows landowners to custom design their own 
specific plans. Contractors will work directly for the public. In turn, 
this will increase the pool of contractors who can bid on public forest 
projects.
  We all know that it is in the best interest of our forests to manage 
our public lands in a manner that maintains their overall health. At 
the same time, it is important to recognize that these are public lands 
and citizens should be fully involved in participating in the decisions 
that affect our national forests.
  The Forest Ecosystem Stewardship Demonstration Act of 1995 proposes a 
unique plan to protect the health of our forests while also protecting 
the economic well-being of those who utilize the natural resources that 
our forests have to offer us.
  This bill will give the Flathead Forestry Project the opportunity to 
test this proposal on a section of private property in Montana. If 
successful, this plan can be used as a model for similar land 
management programs on public lands.
  I want to recognize the hard work of some of the men and women in 
Montana who are personally responsible for this unique legislation; 
Floyd Quiram, Jack Jay, Rem Koht, Bob Stone, Carol Daly, Lex Blood, 
Keith Olson and Steve Thompson. I am proud to introduce this 
legislation on their behalf, and I urge my colleagues to give it their 
support.
  Mr. President, I ask unanimous consent that this bill be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1259

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Forest Ecosystem Stewardship 
     Demonstration Act of 1995''.

     SEC. 2. FINDINGS, PURPOSES, AND DEFINITIONS.

       (a) Findings.--Congress makes the following finding:
       (1) In many of the units of the National Forest System, 
     current conditions--such as unnatural fuel loads, high tree 
     density, threat of catastrophic fires, disease, and insect 
     infestations, habitat loss, and loss of historic species, 
     stand diversity and integrity--adversely affect the 
     biodiversity, health, and sustainability of the forest 
     ecosystems of such units.
       (2) A new and innovative contracting process for the 
     National Forest System is required to meet Federal goals of 
     improving forest resource conditions through implementation 
     of ecosystem management.
       (3) Ecosystem management is not just a biological concept. 
     It is the convergence of a set of activities that is 
     simultaneously ecologically sound, economically viable, and 
     socially responsible.
       (4) The improvement of the health and natural functioning 
     of the forest resource is vital to the long-term viability of 
     species found on National Forest System lands.
       (5) Ecosystem restoration and conservation work performed 
     with revenues from forest activities would improve employment 
     opportunities in communities near units of the National 
     Forest System to the benefit of long-term economic 
     sustainability and community viability.
       (b) Purposes.--The purposes of this Act are as follows:
       (1) To improve and restore the health of forest resources 
     through implementation of ecosystem management.
       (2) To provide for employment opportunities and economic 
     health and viability for rural communities near units of the 
     National Forest System.
       (3) To provide for flexibility in procurement and funding 
     practices to enter into stewardship contracts to achieve 
     management objectives and requirements prescribed in the 
     following provisions of law:
       (A) The Act of June 4, 1897 (commonly known as the Organic 
     Administration Act; 16 U.S.C. 473-475, 477-482, 551).
       (B) The Multiple-Use Sustained Yield Act of 1960 (16 U.S.C. 
     528-531).
       (C) The Forest and Rangeland Renewable Resources Act of 
     1974 (16 U.S.C. 1600-1614).
       (D) Section 14 of the National Forest Management Act of 
     1976 (16 U.S.C. 472a).
       (E) The Act of May 23, 1908, and section 13 of the Act of 
     March 1, 1911 (16 U.S.C. 500).
       (F) The Federal Grants and Agreements Act of 1977 (31 
     U.S.C. 6303-6308).
       (G) National Forest Fund Act of March 4, 1907 (16 U.S.C. 
     499).
       (c) Definitions.--For purposes of this Act:
       (1) Account.--The term ``Account'' means the Stewardship 
     Account established under section 4.
       (2) Design specification contract.--The term ``design 
     specification contract'' is used to describe contracts in 
     which the contracting entity specifically identifies all the 
     tasks 

[[Page S13843]]
     to be performed, and the contractor performs per the designed 
     specifications.
       (3) Forest stewardship council.--The term ``Forest 
     Stewardship Council'' means any one of the local councils 
     established under section 3(f) of this Act to, in cooperation 
     with resource managers: prioritize and select stewardship 
     projects, set operational goals in the context of current 
     national forest management policies and local forest plans, 
     evaluate contractor performance and accomplishments, 
     recommend progress payments for work successfully completed 
     by contractors, and make recommendations for the improvement 
     of the stewardship contract process.
       (4) Performance specification contract.--The term 
     ``performance specification contract'' is used to describe 
     contracts in which the contracting entity identifies the 
     parameters of the project, and the contractor identifies the 
     method to accomplish the work.
       (5) Resource activities.--The term ``resource activities'' 
     includes area access, site preparation, replanting, fish and 
     wildlife habitat restoration or enhancement, silvicultural 
     treatments, watershed improvement, fuel treatments (including 
     prescribed burning), and road closure or obliteration.
       (6) Resource manager.--The term ``resource manager'' refers 
     to the line officer responsible for management decisions 
     associated with project implementation on a national forest.
       (7) Roadside sale.--The term ``roadside sale'' refers to 
     the sale by the Forest Service to the highest bidder(s) of 
     all contract-designated products of the forest removed as 
     part of the management activities conducted under a 
     stewardship contract. (Non-designated products may be 
     assigned to the contractor for salvage.) A roadside sale is a 
     completely separate transaction from the awarding of the 
     stewardship contract itself.
       (8) Secretary.--The term ``Secretary'' means the Secretary 
     of Agriculture.
       (9) Statement of work contract.--The term ``statement of 
     work contract'' is used to describe contracts in which the 
     contracting entity gives a general overview of the project, 
     and the bidding contractor provides the specifics on how he/
     she envisions the project and the end result he/she would 
     obtain using his/her particular approach to land stewardship.
       (10) Stewardship contract.--The term ``stewardship 
     contract'' means a contract for carrying out resource 
     activities for the improvement and restoration of forest 
     ecosystems of units of the National Forest System and to 
     encourage or enhance the economic sustainability and the 
     viability of rural and regional communities. A stewardship 
     contract could use a design specification format (definition 
     2, above), a performance specification format (definition 4, 
     above), a statement of work format (definition 9, above), or 
     some combination thereof.

     SEC. 3. USE OF STEWARDSHIP CONTRACTS.

       (a) Use Authorized.--The Secretary shall establish and 
     implement in the Forest Service a demonstration program 
     through which forest- and/or district-level resource managers 
     use stewardship contracts to carry out resource activities in 
     a comprehensive manner to restore and preserve the ecological 
     integrity and productivity of forest ecosystems within the 
     National Forest System and to encourage or enhance the 
     economic sustainability and the viability of nearby rural 
     communities. The resource activities undertaken should be 
     consistent with the precepts of ecosystem management and with 
     the forest's management plan for achieving the desired future 
     conditions of the area being treated.
       (b) Use Limited.--Within the limits of available financial 
     resources, each forest within the National Forest System may 
     use stewardship contracts to carry out ecosystem management 
     projects, if those contracts:
       (1) Provide for payment to the contractor based on the 
     number of acres satisfactorily treated in accordance with an 
     approved plan to create a desired future condition on the 
     land.
       (2) Are used for projects where the harvest of timber is 
     secondary to creating specific resource conditions (e.g., 
     wildlife habitat enhancement, watershed improvement, insect 
     and disease control).
       (3) Are not used for projects involving the construction of 
     new permanent roads or entries into roadless areas.
       (4) Will result in the removal of no more than 300,000 
     board feet of merchantable timber per project.
       (5) Provide for the roadside sale of all contract-
     designated merchantable timber which is extracted.
       (6) Are awarded competitively to qualified contractors with 
     no more than 25 employees.
       (7) Include stewardship skill and experience qualification 
     requirements which have been established by the local Forest 
     Stewardship Council and approved by the Forest Service.
       (8) Are monitored not only by the Forest Service, but also 
     by the local Forest Stewardship Council.
       (9) Provide for periodic progress payments to contractors 
     based on successful completion of contract activities on a 
     per acre basis. The acceptability of the contractor's work 
     shall be determined by the Forest Service, taking into 
     account the recommendation of the local Forest Stewardship 
     Council.
       (c) Demonstration Research Objectives.--The Secretary shall 
     insure that in the carrying out of the provisions of this Act 
     enough flexibility is provided to resource managers to enable 
     them to test various approaches to solving questions left 
     unresolved in previous demonstrations of stewardship and end 
     results contracts authorized in fiscal year 1991 and 1992 
     through the Department of the Interior and Related 
     Appropriation Acts. These questions include, but are not 
     limited to:
       (1) The need for the bonding of stewardship contractors 
     and/or possible alternatives which could reduce the financial 
     burden on small businesses.
       (2) Preferred methods of marketing timber or other products 
     of the forest removed as a result of stewardship contract 
     activities.
       (3) The standards to be used in evaluating the quality and 
     acceptability of the work performed by a stewardship 
     contractor.
       (4) The desirability of multi-year contracts for 
     stewardship projects.
       (5) The relative merits of using design specifications, 
     performance specifications, or statements of work in 
     offering, awarding, and evaluating stewardship contracts.
       (6) The costs, benefits, problems, and opportunities 
     resulting from increased community involvement in the design 
     and monitoring of stewardship contracts.
       (7) The benefits and problems resulting from restricting 
     stewardship contracts to very small (no more than 25 
     employees) contractors.
       (8) The extent to which local economic sustainability and 
     rural community viability are affected by the use of 
     stewardship contracts.
       (9) The difference between estimated and actual revenues 
     derived from roadside sales of timber.
       (10) The level of utilization of timber and other products 
     of the forest derived from stewardship contract projects as 
     compared with conventional timber sales.
       (11) The extent to which stewardship contracting 
     contributes to the achievement of forest ecosystem management 
     plans.
       (12) The extent to which the revenues from stewardship 
     contracts cover the cost of such contracts or are offset by 
     the costs which could reasonably be expected to result if the 
     contracts are not carried out (e.g., fire suppression costs 
     in areas with heavy fuel loads).
       (13) The administrative costs or savings involved in the 
     use of stewardship contracts.
       (14) The benefits and/or disadvantages of using local 
     Forest Stewardship Councils as part of the stewardship 
     contracting process.
       (15) The benefits and/or disadvantages of various methods 
     of selecting members, organizing, administering, and 
     conducting the business of local Forest Stewardship Councils.
       (d) Development and Use of Contracts.--Each resource 
     manager of a unit of the National Forest System may enter 
     into stewardship contracts with qualified non-Federal 
     entities (as established in regulations relating to 
     procurement by the Federal Government or as determined by the 
     Secretary.) The local Forest Stewardship Council, in 
     cooperation with the Forest Service resource manager, shall 
     select the type of stewardship contract that is most suitable 
     to local conditions. Contracts should clearly describe the 
     desired future condition for each resource managed under the 
     contract and the evaluation criteria to be used to determine 
     acceptable performance. The length of a stewardship contract 
     shall be consistent with the requirements of section 14 of 
     the National Forest Management Act of 1976 (16 U.S.C. 472a).
       (e) Selection of Areas for Contracts.--In selecting areas 
     within units of the National Forest System to be subject to 
     stewardship contracts, the Secretary, resource managers, and 
     local Forest Stewardship Councils shall base the selection on 
     the need to improve forest health, maintain and improve soil 
     and water quality, and improve fisheries and wildlife 
     habitat. Priorities for activities within individual units 
     will be established by local resource managers, in 
     consultation with the appropriate local Forest Stewardship 
     Council.
       (f) Establishment of Local Forest Stewardship Councils.--
     Local Forest Stewardship Councils shall be established for 
     each unit of the National Forest System which offers 
     stewardship contracts. The role of a Forest Stewardship 
     Council will be to, in cooperation with the resource 
     managers, prioritize and select stewardship projects, set 
     operational goals in the context of current national forest 
     management policies and local forest plans, evaluate 
     contractor performance and accomplishments, recommend 
     progress payments for work successfully completed by 
     contractors, and make recommendations for the improvement of 
     the stewardship contract process. Each participating National 
     Forest System unit shall establish, after soliciting the 
     comments of local citizens, the size of the local council, 
     the method of selection or election of council members, the 
     terms of service of members, and the council administrative 
     budget, if any. At least 51 percent of members of any Forest 
     Stewardship Council shall be drawn from the private sector, 
     in a manner which insures representation of a broad range of 
     public interests. The functioning of the Forest Stewardship 
     Councils must assure a continuing and open process and 
     must in no way interfere with the broad public involvement 
     in Federal resource management decision making required 
     under the National Environmental Policy Act of 1976.
       (g) Application of Contracts.--Subject to subsection (h), 
     the revenue received from the sale of timber or any other 
     products of the 

[[Page S13844]]
     forest resulting to the Federal Government as a result of work carried 
     out under a stewardship contract shall be deposited into a 
     Stewardship Account as established in section 4(a).
       (h) Effect on Other Revenue Requirements.--Twenty-five 
     percent of the revenues received from roadside sale of 
     products extracted through stewardship contract activities 
     shall remain available for payments to States, as required 
     under the Act of May 23, 1908, and section 13 of the Act of 
     March 1, 1991 (16 U.S.C. 500). The Secretary shall first 
     collect revenues to make such payments before exercising the 
     authority provided in subsection g.

     SEC. 4. STEWARDSHIP CONTRACT RECEIPTS AND EXPENDITURES.

       (a) Receipts.--Monetary receipts received as payment for 
     contract-designated timber and other products of the forest 
     extracted through stewardship contract activities shall be 
     deposited in a designated fund to be known as the 
     ``Stewardship Account''. Amounts in the Account shall be used 
     to make payments to States under the Act of May 23, 1908, and 
     section 13 of the Act of March 1, 1911 (16 U.S.C. 500), and 
     to fund resource activities. Amounts in the Account are 
     hereby appropriated and shall be available to the Secretary 
     until expended, except that those amounts found by the 
     Secretary to be in excess of the needs of the Secretary shall 
     be transferred to miscellaneous receipts in the Treasury of 
     the United States. Any additional revenues made available 
     through direct appropriations to the Forest Service for 
     stewardship contracting and ecosystem management purposes 
     also shall be deposited in the Account.
       (b) Expenditures.--Not less than 80 percent of amounts in 
     the Account available for resource activities shall be used 
     for the direct costs of such resource activities. The 
     revenues received from sales of contract-designated products 
     resulting from stewardship contracts shall be returned to the 
     national forest from which they were generated, to be used to 
     fund additional stewardship contracts. To the extent that 
     additional revenues are received in the Account from direct 
     appropriations by the Congress of funds for stewardship 
     contract activities, such funds shall be made available to 
     those forest units using stewardship contracts through a 
     process to be developed by the Secretary.
       (c) Reporting.--As part of the annual report of the 
     Secretary to Congress, the Secretary shall include an 
     accounting of revenues, expenditures, and accomplishments 
     related to the stewardship contracts.

     SEC. 5. RELATION TO OTHER LAWS.

       All stewardship contracts shall comply with existing 
     applicable laws, and nothing in this Act may be construed as 
     modifying the provisions of any other law except as 
     explicitly provided in this Act.

     SEC. 6. EFFECTIVE DATE.

       This Act shall be effective upon passage.

     SEC. 7. TERMINATION DATE.

       Unless extended by a subsequent act of the Congress, this 
     Act shall terminate five years from its effective 
     date.
                                 ______

      By Mr. MACK (for himself, Mr. D'Amato, and Mr. Bond):
  S. 1260. A bill to reform and consolidate the public and assisted 
housing programs of the United States, and to redirect primary 
responsibility for these programs from the Federal Government to States 
and localities, and for other purposes; to the Committee on Banking, 
Housing, and Urban Affairs.


         the public housing reform and empowerment act of 1995

  Mr. MACK. Mr. President, I am pleased to introduce, on behalf of 
Senators D'Amato and Bond, the Public Housing Reform and Empowerment 
Act of 1995. This bill represents the first serious effort in decades 
to reform and consolidate the Nation's public and tenant-based assisted 
housing programs, and to redirect the primary responsibility for these 
programs away from the Federal bureaucracy and toward States and 
localities.
  Public housing is home to 1.4 million American families, and much of 
it is good. Unfortunately, to many Americans the pictures in the 
national media of high rise public housing projects being imploded 
symbolize the failure of our housing policy. Clearly, some public 
housing, particularly in major cities, has fallen into a vicious cycle 
of crime, drug abuse, welfare dependency, and hopelessness. In far too 
many places, public housing developments, which are supposed to provide 
a housing platform from which lower-income families can achieve their 
own aspirations of economic independence and self-sufficiency, are 
little more than warehouses that rob the poorest of the poor of their 
dignity and hope.
  The underlying principle of the Public Housing Reform and Empowerment 
Act is resident choice. By encouraging cost-effective and efficient use 
of resources, the bill gives housing authorities the ability to offer 
their residents tenant-based assistance where it is economically 
feasible. It also requires that distressed public housing be vouchered 
out to protect the right of residents to decent and safe housing.
  A key to increasing resident choice is improving the ability of 
tenant-based assistance programs to meet the demand for affordable 
housing. This bill makes important changes in the section 8 voucher 
program. It repeals program requirements, such as ``take one, take 
all,'' that discourage landlords from participating in the tenant-based 
program, and it emphasizes lease requirements similar to those in the 
marketplace.
  Micromanagement by both Congress and the Department of Housing and 
Urban Development [HUD] has saddled housing authorities with rules and 
regulations that make it almost impossible for even the best of them to 
run their developments effectively and efficiently. Under today's 
rules, the residents of public housing face powerful disincentives to 
work and to achieve economic self-sufficiency. The public housing 
system must be changed radically before it is entirely discredited.
  Our bill addresses the crisis in public housing by consolidating 
public housing funding into two block grants and transferring greater 
responsibility for the operation and management of public housing to 
the housing authorities. It provides greater flexibility to housing 
authorities to utilize their resources in a more efficient, effective, 
and creative manner to improve housing quality, while also providing 
for local accountability in the use of those resources.
  The bill ends Federal requirements that have prevented housing 
authorities from demolishing their obsolete housing stock, concentrated 
and isolated the poorest of the poor, and created disincentives for 
public housing residents who want to work and improve their own lives. 
It would, among other things, permit housing authorities to change 
counterproductive rent rules that currently discourage employment and 
prevent the creation of mixed-income public housing communities.
  It also repeals Federal preferences and allow housing authorities to 
operate according to locally established preferences that are 
consistent with a community's housing needs.
  While allowing well-run housing authorities much more discretion, our 
bill would also crack down on those housing authorities that are 
troubled. Although small in number, these authorities with severe 
management problems control almost 15 percent of the Nation's public 
housing stock. HUD would be required to take over or appoint a receiver 
for PHA's that are unable to make significant improvements in their 
operations. This legislation would also give HUD expanded powers to 
break up or reconfigure troubled authorities, dispose of their assets, 
or abrogate contracts that impede correction of the housing authority's 
problems.
  Mr. President, this legislation will help protect the Federal 
Government's sizeable investment in public housing. It will also 
empower residents by increasing their involvement in developing housing 
agency management plans, expanding tenant management opportunities, and 
making public housing a springboard to dignity and hope.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1260

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Public 
     Housing Reform and Empowerment Act of 1995''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purpose.
Sec. 3. Definitions.
Sec. 4. Effective date.
Sec. 5. Technical recommendations; elimination of obsolete documents.

                   TITLE I--PUBLIC AND INDIAN HOUSING

Sec. 101. Declaration of policy.
Sec. 102. Nondiscrimination.
Sec. 103. Authority of public housing agencies.
Sec. 104. Definitions.
Sec. 105. Contributions for lower income housing projects.

[[Page S13845]]

Sec. 106. Public housing agency plan.
Sec. 107. Contract provisions and requirements.
Sec. 108. Expansion of powers.
Sec. 109. Public housing designated for the elderly and the disabled.
Sec. 110. Public and Indian housing capital and operating funds.
Sec. 111. Labor standards.
Sec. 112. Repeal of energy conservation; consortia and joint ventures.
Sec. 113. Repeal of modernization fund.
Sec. 114. Income eligibility for assisted housing.
Sec. 115. Demolition and disposition of public housing.
Sec. 116. Repeal of family investment centers; vouchers for public 
              housing.
Sec. 117. Repeal of family self-sufficiency; homeownership 
              opportunities.
Sec. 118. Conversion of distressed public housing to vouchers.
Sec. 119. Applicability to Indian housing.

                 TITLE II--SECTION 8 RENTAL ASSISTANCE

Sec. 201. Merger of the certificate and voucher programs.
Sec. 202. Repeal of Federal preferences.
Sec. 203. Portability.
Sec. 204. Leasing to voucher holders.
Sec. 205. Homeownership option.
Sec. 206. Technical and conforming amendments.
Sec. 207. Implementation.
Sec. 208. Effective date.

                  TITLE III--MISCELLANEOUS PROVISIONS

Sec. 301. Public housing flexibility in the CHAS.
Sec. 302. Public housing flexibility in the HOME program.
Sec. 303. Repeal of certain provisions.
Sec. 304. Determination of income limits.

     SEC. 2. FINDINGS AND PURPOSE.

       (a) Findings.--The Congress finds that--
       (1) there exists throughout the Nation a need for decent, 
     safe, and affordable housing;
       (2) as of the date of enactment of this Act, the inventory 
     of public housing units owned and operated by public housing 
     agencies, an asset in which the Federal Government has 
     invested approximately $90,000,000,000, has traditionally 
     provided rental housing that is affordable to low-income 
     persons;
       (3) despite serving this critical function, the public 
     housing system is plagued by a series of problems, including 
     the concentration of very poor people in very poor 
     neighborhoods and disincentives for economic self-
     sufficiency;
       (4) the Federal method of overseeing every aspect of public 
     housing by detailed and complex statutes and regulations 
     aggravates the problem and places excessive administrative 
     burdens on public housing agencies;
       (5) the interests of low-income persons, and the public 
     interest, will best be served by a reformed public housing 
     program that--
       (A) consolidates many public housing programs into a single 
     program for the operation and capital needs of public 
     housing;
       (B) streamlines program requirements; and
       (C) vests in public housing agencies that perform well the 
     maximum feasible authority, discretion, and control with 
     appropriate accountability to both public housing residents 
     and localities; and
       (6) voucher and certificate programs under section 8 of the 
     United States Housing Act of 1937 are successful for 
     approximately 80 percent of applicants, and a consolidation 
     of the voucher and certificate programs into a single, 
     market-driven program will assist in making section 8 tenant-
     based assistance more successful in assisting low-income 
     families in obtaining affordable housing.
       (b) Purpose.--The purpose of this Act is to consolidate the 
     various programs and activities under the public housing 
     programs administered by the Secretary in a manner designed 
     to reduce Federal overregulation, to redirect the 
     responsibility for a consolidated program to States, 
     localities, public housing agencies, and public housing 
     residents, and to require Federal action to overcome problems 
     of public housing agencies with severe management 
     deficiencies.

     SEC. 3. DEFINITIONS.

       For purposes of this Act, the following definitions shall 
     apply:
       (1) Public housing agency.--The term ``public housing 
     agency'' has the same meaning as in section 3 of the United 
     States Housing Act of 1937.
       (2) Secretary.--The term ``Secretary'' means the Secretary 
     of Housing and Urban Development.

     SEC. 4. EFFECTIVE DATE.

       Except as otherwise specifically provided in this Act or 
     the amendments made by this Act, this Act and the amendments 
     made by this Act shall become effective on the date of 
     enactment of this Act.

     SEC. 5. TECHNICAL RECOMMENDATIONS; ELIMINATION OF OBSOLETE 
                   DOCUMENTS.

       (a) Technical Recommendations.--Not later than 9 months 
     after the date of enactment of this Act, the Secretary shall 
     submit to the Committee on Banking, Housing, and Urban 
     Affairs of the Senate and the Committee on Banking and 
     Financial Services of the House of Representatives, 
     recommended technical and conforming amendments to carry out 
     the amendments made by this Act.
       (b) Elimination of Obsolete Documents.--
       (1) In general.--Effective 1 year after the date of 
     enactment of this Act, no rule, regulation, or order 
     (including all handbooks, notices, and related requirements) 
     issued or promulgated under the United States Housing Act of 
     1937 before the date of enactment of this Act may be enforced 
     by the Secretary.
       (2) Proposed regulations.--Not later than 6 months after 
     the date of enactment of this Act, the Secretary shall submit 
     to the Congress proposed regulations that the Secretary 
     determines are necessary to carry out the United States 
     Housing Act of 1937, as amended by this Act.
                   TITLE I--PUBLIC AND INDIAN HOUSING

     SEC. 101. DECLARATION OF POLICY.

       Section 2 of the United States Housing Act of 1937 (42 
     U.S.C. 1437) is amended to read as follows:

     ``SEC. 2. DECLARATION OF POLICY.

       ``It is the policy of the United States to promote the 
     general welfare of the Nation by employing the funds and 
     credit of the Nation, as provided in this Act--
       ``(1) to assist States and political subdivisions of States 
     to remedy the unsafe housing conditions and the acute 
     shortage of decent and safe dwellings for low-income 
     families; and
       ``(2) consistent with the objectives of this title, to vest 
     in public housing agencies that perform well, the maximum 
     amount of responsibility and flexibility in program 
     administration, with appropriate accountability to both 
     public housing residents and localities.''.

     SEC. 102. NONDISCRIMINATION.

       Title I of the United States Housing Act of 1937 (42 U.S.C. 
     1437 et seq.) is amended by adding at the end the following 
     new section:

     ``SEC. 27. NONDISCRIMINATION.

       ``(a) Public Housing Residents.--No person shall be 
     prohibited from serving on the board of directors or similar 
     governing body of a public housing agency because of the 
     residence of that person in a low-income housing project.
       ``(b) Nondiscrimination Based on Race, Color, National 
     Origin, Religion, or Sex.--
       ``(1) In general.--No person in the United States shall, 
     based on the race, color, national origin, religion, or sex 
     of that person be excluded from participation in, denied the 
     benefits of, or be subjected to discrimination under any 
     program or activity funded in whole or in part with funds 
     made available under this title.
       ``(2) Applicability of other laws.--Any prohibition against 
     discrimination on the basis of age under the Age 
     Discrimination Act of 1975, or with respect to an otherwise 
     qualified handicapped individual, as provided in section 504 
     of the Rehabilitation Act of 1973 shall apply to any such 
     program or activity.''.

     SEC. 103. AUTHORITY OF PUBLIC HOUSING AGENCIES.

       (a) Authority of Public Housing Agencies.--
       (1) In general.--Section 3(a)(2) of the United States 
     Housing Act of 1937 (42 U.S.C. 1437a(a)(2)) is amended to 
     read as follows:
       ``(2) Authority of public housing agencies.--
       ``(A) Ceiling rents.--Notwithstanding paragraph (1), a 
     public housing agency may--
       ``(i) adopt ceiling rents that reflect the reasonable 
     market value of the housing, but that are not less than the 
     actual monthly costs--

       ``(I) to operate such housing; and
       ``(II) to make a deposit to a replacement reserve (in the 
     sole discretion of the public housing agency); and

       ``(ii) allow families to pay ceiling rents referred to in 
     clause (i), unless, with respect to any family, the ceiling 
     rent established under this subparagraph would exceed the 
     amount payable as rent by that family under paragraph (1).
       ``(B) Minimum rent.--Notwithstanding paragraph (1), a 
     public housing agency may provide that each family residing 
     in a public housing project or receiving tenant-based or 
     project-based assistance under section 8 shall pay a minimum 
     monthly rent in an amount not to exceed $30 per month.
       ``(C) Mixed-income projects.--
       ``(i) In general.--Notwithstanding paragraph (1), and 
     subject to clause (ii), a public housing agency may own or 
     operate one or more mixed-income projects, except as 
     otherwise provided in the public housing agency plan of that 
     public housing agency submitted in accordance with section 
     5A.
       ``(ii) Restriction.--No assistance provided under section 9 
     shall be used by a public housing agency in direct support of 
     any unit rented to a household that is not a low-income 
     household.
       ``(D) Police officers.--
       ``(i) In general.--Notwithstanding any other provision of 
     law, a public housing agency may, in accordance with the 
     public housing agency plan of the public housing agency, 
     allow a police officer who is not otherwise eligible for 
     residence in public housing to reside in a public housing 
     unit. The number and location of units occupied by police 
     officers under this clause, and the terms and conditions of 
     their tenancies, shall be determined by the public housing 
     agency.
       ``(ii) Definition.--As used in this subparagraph, the term 
     `police officer' means any person determined by a public 
     housing agency to be, during the period of residence of such 
     person in public housing, employed on a full-time basis by a 
     Federal, State, or local government or any agency thereof 
     (including a public housing agency having an accredited 
     police force) as a duly licensed professional police officer.

[[Page S13846]]

       ``(E) Encouragement of self-sufficiency.--Public housing 
     agencies shall develop rental policies that encourage and 
     reward employment and upward economic mobility.''.
       (2) Regulations.--
       (A) In general.--The Secretary shall, by regulation, after 
     notice and an opportunity for public comment, establish such 
     requirements as may be necessary to carry out section 
     3(a)(2)(A) of the United States Housing Act of 1937, as 
     amended by paragraph (1).
       (B) Transition rule.--Prior to the issuance of final 
     regulations under paragraph (1), a public housing agency may 
     implement ceiling rents, which shall be--
       (i) determined in accordance with section 3(a)(2)(A) of the 
     United States Housing Act of 1937, as such section existed on 
     the day before effective date of this Act; or
       (ii) equal to the 95th percentile of the rent paid for a 
     unit of comparable size by tenants in the same project or a 
     group of comparable projects totaling 50 units or more.
       (b) High Performing Public Housing Agencies.--
       (1) In general.--Section 3(a) of the United States Housing 
     Act of 1937 (42 U.S.C. 1437(a)) is amended by adding at the 
     end the following new paragraph:
       ``(3) High performing public housing agencies.--
       ``(A) In general.--Notwithstanding the rent calculation 
     formula in paragraph (1), subject to subparagraph (B), the 
     Secretary shall permit a high performing public housing 
     agency, as determined by the Secretary, to determine the 
     amount that a family residing in public housing shall pay as 
     rent.
       ``(B) Limitation.--With respect to a family whose income is 
     equal to or less than 30 percent of the median income for the 
     area, as determined by the Secretary with adjustments for 
     smaller and larger families, a public housing agency may not 
     require a family to pay as rent under subparagraph (A) an 
     amount that exceeds the greater of--
       ``(i) 30 percent of the monthly adjusted income of the 
     family; and
       ``(ii) $30.''.
       (2) Phase-in period.--If a public housing agency charges 
     rent pursuant to section 3(a)(3) of the United States Housing 
     Act of 1937, as added by paragraph (1) of this subsection, 
     the agency shall phase in any increase in the amount 
     otherwise payable by the family over a 3-year period.
       (3) Reports to congress.--
       (A) Initial report.--Not later than 2 years after the date 
     of enactment of this Act, the Secretary shall report to the 
     Congress on the impact of section 3(a)(3) of the United 
     States Housing Act of 1937, as added by paragraph (1) of this 
     subsection, on residents and on the economic viability of 
     public housing agencies.
       (B) Final report.--Not later than 5 years after the date of 
     enactment of this Act, the Secretary shall submit to the 
     Congress a final report on the impact of section 3(a)(3) of 
     the United States Housing Act of 1937, as added by paragraph 
     (1) of this subsection, on residents and on the economic 
     viability of public housing agencies. The report shall 
     include recommendations for any legislative changes to rent 
     reform policies.

     SEC. 104. DEFINITIONS.

       (a) Definitions.--
       (1) Single persons.--Section 3(b)(3) of the United States 
     Housing Act of 1937 (42 U.S.C. 1437a(b)(3)) is amended--
       (A) in subparagraph (A), in the third sentence, by striking 
     ``the Secretary shall'' and all that follows before the 
     period at the end and inserting the following: ``the public 
     housing agency may give preference to single persons who are 
     elderly or disabled persons before single persons who are 
     otherwise eligible''; and
       (B) in subparagraph (B), in the second sentence, by 
     striking ``regulations of the Secretary'' and inserting 
     ``public housing agency plan of the public housing agency''.
       (2) Definition of adjusted income.--Section 3(b)(5) of the 
     United States Housing Act of 1937 (42 U.S.C. 1437a(b)(5)) is 
     amended to read as follows:
       ``(5) Adjusted income.--The term `adjusted income' means 
     the income that remains after excluding--
       ``(A) $480 for each member of the family residing in the 
     household (other than the head of the household or spouse)--
       ``(i) who is under 18 years of age; or
       ``(ii) who is--

       ``(I) 18 years of age or older; and
       ``(II) a person with disabilities or a full-time student;

       ``(B) $400 for an elderly or disabled family;
       ``(C) the amount by which the aggregate of--
       ``(i) medical expenses for an elderly or disabled family; 
     and
       ``(ii) reasonable attendant care and auxiliary apparatus 
     expenses for each family member who is a person with 
     disabilities, to the extent necessary to enable any member of 
     the family (including a member who is a person with 
     disabilities) to be employed;

     exceeds 3 percent of the annual income of the family;
       ``(D) child care expenses, to the extent necessary to 
     enable another member of the family to be employed or to 
     further his or her education;
       ``(E) excessive travel expenses, not to exceed $25 per 
     family per week, for employment- or education-related travel, 
     except that this subparagraph shall apply only to a family 
     assisted by an Indian housing authority; and
       ``(F) any other income that the public housing agency 
     determines to be appropriate, as provided in the public 
     housing agency plan of the public housing agency.''.
       (b) Definitions of Terms Used in Reference to Public 
     Housing.--
       (1) Technical correction.--Section 622(c) of the Housing 
     and Community Development Act of 1992 (Public Law 102-550; 
     106 Stat. 3817) is amended by inserting ``in paragraph (3),'' 
     after ``is amended''.
       (2) Housing act of 1937.--Section 3(c) of the United States 
     Housing Act of 1937 (42 U.S.C. 1437a(c)) is amended--
       (A) in paragraph (1), by inserting ``and of the fees and 
     related costs normally involved in obtaining non-Federal 
     financing and tax credits with or without private and 
     nonprofit partners'' after ``carrying charges'';
       (B) in paragraph (2), in the first sentence, by striking 
     ``security personnel),'' and all that follows through the 
     period and inserting the following: ``security personnel), 
     and all eligible activities under the Public and Assisted 
     Housing Drug Elimination Act of 1990, or financing in 
     connection with a low-income housing project, including 
     projects developed with non-Federal financing and tax 
     credits, with or without private and nonprofit partners.'';
       (C) in the undesignated paragraph immediately following 
     paragraph (3), by striking ``The earnings of'' and all that 
     follows through the period at the end; and
       (D) by adding at the end the following new paragraphs:
       ``(6) Public housing agency plan.--The term `public housing 
     agency plan' means the annual plan adopted by a public 
     housing agency under section 5A.
       ``(7) Disabled housing.--The term `disabled housing' means 
     any project, building, or portion of a project or building 
     that is designated by a public housing agency for occupancy 
     exclusively by disabled persons or families.
       ``(8) Elderly housing.--The term `elderly housing' means 
     any project, building, or portion of a project or building, 
     that is designated by a public housing agency for occupancy 
     exclusively by elderly persons or families, including elderly 
     disabled persons or families.
       ``(9) Mixed-income project.--
       ``(A) In general.--The term `mixed-income project' means a 
     project that is occupied both by one or more low-income 
     households and by one or more households that are not low-
     income households.
       ``(B) Types of projects.--The term `mixed-income project' 
     includes a project developed--
       ``(i) by a public housing agency or an entity controlled by 
     a public housing agency; and
       ``(ii) by a partnership, a limited liability company, or 
     other entity in which the public housing agency (or an entity 
     controlled by a public housing agency) is a general partner, 
     managing member, or otherwise has significant participation 
     in directing the activities of such entity, if--

       ``(I) units are made available in the project, by master 
     contract or individual lease, for occupancy by low-income 
     families identified by the public housing agency for a period 
     of not less than 20 years; and
       ``(II) the number of public housing units are approximately 
     in the same proportion to the total number of units in the 
     mixed-income project that, in the sole determination of the 
     public housing agency, the value of the financial assistance 
     provided by the public housing agency bears to the value of 
     the total equity investment in the project, or shall not be 
     less than the number of units that could have been developed 
     under the conventional public housing program with the 
     assistance.

       ``(C) Taxation.--A mixed-income project may elect to have 
     all units subject to the local real estate taxes, except that 
     units designated as public housing units shall be eligible at 
     the discretion of the public housing agency for the taxing 
     requirements under section 6(d).''.

     SEC. 105. CONTRIBUTIONS FOR LOWER INCOME HOUSING PROJECTS.

       Section 5 of the United States Housing Act of 1937 (42 
     U.S.C. 1437c) is amended by striking subsections (h) through 
     (l).

     SEC. 106. PUBLIC HOUSING AGENCY PLAN.

       (a) In General.--Title I of the United States Housing Act 
     of 1937 (42 U.S.C. 1437 et seq.) is amended by inserting 
     after section 5 the following new section:

     ``SEC. 5A. PUBLIC HOUSING AGENCY PLAN.

       ``(a) In General.--
       ``(1) Submission.--Each public housing agency shall submit 
     to the Secretary a written public housing agency plan 
     developed in accordance with this section.
       ``(2) Consistency requirement.--Each public housing agency 
     plan submitted to the Secretary under paragraph (1) shall 
     be--
       ``(A) made in consultation with the local advisory board 
     established under subsection (c);
       ``(B) consistent with the Comprehensive Housing 
     Affordability Strategy for the jurisdiction in which the 
     public housing agency is located, as provided under title I 
     of the Cranston-Gonzalez National Affordable Housing Act; and
       ``(C) accompanied by a certification by an appropriate 
     State or local public official that the proposed public 
     housing activities are consistent with the housing strategy 
     of the jurisdiction to be served by the public housing 
     agency, as required by subparagraph (B).

[[Page S13847]]

       ``(b) Contents.--Each public housing agency plan shall 
     contain, at a minimum, the following:
       ``(1) Certification.--A written certification that the 
     public housing agency is a governmental entity or public body 
     (or agency or instrumentality thereof) that is authorized to 
     engage in or assist in the development or operation of low-
     income housing. Any reference in any provision of law of the 
     jurisdiction authorizing the creation of the public housing 
     agency shall be identified and any legislative declaration of 
     purpose in regard thereto shall be set forth in the 
     certification with full text.
       ``(2) Statement of policy.--An annual statement of policy 
     identifying the primary goals and objectives of the public 
     housing agency for the year for which the statement is 
     submitted, together with any major developments, projects, or 
     programs, including all proposed costs and activities under 
     the Capital and Operating Funds of the public housing agency 
     established under section 9.
       ``(3) General policies, rules, and regulations.--The 
     policies, rules, and regulations of the public housing agency 
     regarding--
       ``(A) the requirements for eligibility into each program 
     administered by the public housing agency and the policies of 
     the public housing agency concerning verification of 
     eligibility, which verification shall be required upon 
     initial commencement of residency and not less frequently 
     than annually thereafter;
       ``(B) the requirements for the selection and admission of 
     eligible families into the program or programs of the public 
     housing agency, including the tenant screening policies, any 
     preferences or priorities for selection and admission, and 
     the requirements pertaining to the administration of the 
     waiting list or lists of the public housing agency;
       ``(C) the procedure for assignment of persons admitted into 
     the program to dwelling units owned, leased, managed, or 
     assisted by the public housing agency; and
       ``(D) the requirements for occupancy of dwelling units, 
     including all standard lease provisions, and conditions for 
     continued occupancy, termination, and eviction.
       ``(4) Management.--The policies, rules, and regulations 
     relating to the management of the public housing agency, and 
     the projects and programs of the public housing agency, 
     including--
       ``(A) a description of how the public housing agency is 
     organized and staffed to perform the duties and functions of 
     the public housing agency;
       ``(B) policies relating to the marketing of dwelling units 
     owned or operated by the public housing agency;
       ``(C) policies relating to rent collection;
       ``(D) policies relating to security;
       ``(E) policies relating to services and amenities provided 
     or offered to families assisted, including all related 
     charges or fees, if any;
       ``(F) any system of priorities in the management of the 
     operations of the public housing agency; and
       ``(G) a list of activities to enhance tenant empowerment 
     and management, including assistance to resident councils and 
     resident management corporations.
       ``(5) Rents and charges.--
       ``(A) In general.--The policies of the public housing 
     agency concerning rents or other charges, the manner in which 
     such policies are determined, and the justification for the 
     policies.
       ``(B) Factors for consideration.--In determining and 
     justifying the policies described in subparagraph (A), the 
     public housing agency shall take into account--
       ``(i) the goals of the public housing agency to serve 
     households with a broad range of incomes, to create 
     incentives for families to obtain employment, and to serve 
     primarily low-income families;
       ``(ii) the costs and other financial considerations of the 
     public housing agency; and
       ``(iii) such other factors as the public housing agency 
     determines to be relevant.
       ``(6) Economic and social self-sufficiency programs.--A 
     description of any programs, plans, and activities of the 
     public housing agency for the enhancement of the economic and 
     social self-sufficiency of residents assisted by the programs 
     of the public housing agency. The description shall include a 
     statement of any self-sufficiency requirements affecting 
     residents assisted by the programs of the public housing 
     agency.
       ``(7) Use of funds for existing units.--
       ``(A) In general.--A statement describing the use of 
     distributions from the Capital Fund and Operating Fund of the 
     public housing agency, established in accordance with section 
     9, including a general description of the public housing 
     agency policies or plans to keep the property of the public 
     housing agency in a decent and safe condition.
       ``(B) Annual and 5-year plan.--An annual plan and, if 
     appropriate, a 5-year plan of the public housing agency for 
     modernization of the existing dwelling units of the public 
     housing agency, a plan for preventative maintenance, a plan 
     for routine maintenance, and a plan to handle emergencies and 
     other disasters. Each annual and 5-year plan shall include a 
     general statement identifying the long-term viability and 
     physical condition of each of the projects and other property 
     of the public housing agency, including cost estimates and 
     demolition plans, if any.
       ``(8) Use of funds for new or additional units and 
     demolition or disposition.--
       ``(A) In general.--
       ``(i) Capital and operating funds.--If applicable, a 
     description of the plans of the public housing agency for the 
     Capital Fund and Operating Fund distributions of the public 
     housing agency established under section 9, for the purpose 
     of new construction, demolition, or disposition.
       ``(ii) Annual and 5-year plans.--An annual plan and a 5-
     year plan describing any current and future plans for the 
     development or acquisition of new or additional dwelling 
     units, or the demolition or disposition of any of the 
     existing housing stock of the public housing agency, 
     including--

       ``(I) any plans for the sale of existing dwelling units to 
     low-income residents, other low-income persons or families, 
     or organizations acting as conduits for sales to low-income 
     residents, or other low-income persons or families, under a 
     homeownership plan; and
       ``(II) the plans of the public housing agency, if any, for 
     replacement of dwelling units to be demolished or disposed 
     of, and any plans providing for the relocation of residents 
     who will be displaced by a demolition or disposition of 
     units.

       ``(B) Demolitions.--In the case of a demolition of any 
     existing housing stock, each plan required under subparagraph 
     (A)(ii) shall include--
       ``(i) identification of the property to be demolished;
       ``(ii) the estimated costs of the demolition and the 
     sources of funds to pay for the demolition;
       ``(iii) the uses and explanation of the uses to which the 
     property will be put after demolition; and
       ``(iv) the reasons for the demolition and for the 
     conclusion of the public housing agency that the demolition 
     is in the best interests of the programs of the public 
     housing agency.
       ``(C) Dispositions.--In the case of a disposition of any 
     existing housing stock, each plan required under subparagraph 
     (A)(ii) shall include--
       ``(i) a description of the property to be disposed of;
       ``(ii) a description of the use or uses to which the 
     property will be put after disposition, including findings 
     with regard to--

       ``(I) whether the new use or uses are consistent and 
     compatible with any public housing agency dwelling units that 
     will remain in the immediate vicinity of the property to be 
     disposed of; and
       ``(II) whether the public housing agency plans to retain 
     any control over or rights in the property after disposition;

       ``(iii) identification of any consideration, whether in 
     money, property, or both, to be received by the public 
     housing agency as part of the disposition, and the low-income 
     uses that the public housing agency intends for the proceeds, 
     pursuant to the requirements of section 18; and
       ``(iv) the reasons for disposition of the property by the 
     public housing agency and for the conclusion of the public 
     housing agency that the disposition is in the best interests 
     of the tenants, programs, and activities of the public 
     housing agency.
       ``(D) Other information.--The public housing agency shall, 
     with respect to any demolition or disposition plan required 
     by subparagraph (A)(ii), comply with the requirements of 
     section 18, and the public housing agency plan shall 
     expressly certify such compliance.
       ``(9) Operating fund plan.--
       ``(A) In general.--A plan for the Operating Fund of the 
     public housing agency, including--
       ``(i) an identification of all sources and uses of funding 
     and income of the public housing agency;
       ``(ii) a description for the establishment, maintenance, 
     and use of reserves; and
       ``(iii) an operating budget, a budget for any modernization 
     or development, and any plans that the public housing agency 
     has for borrowing funds, including a description of any 
     anticipated actions to mortgage or otherwise grant a security 
     interest in any of the projects or other properties of the 
     public housing agency in connection with public housing 
     agency borrowings.
       ``(B) Approval by the secretary.--Each plan under 
     subparagraph (A) involving mortgaging or granting a security 
     interest in the projects of the public housing agency shall--
       ``(i) be deemed to be approved by the Secretary, unless the 
     Secretary provides a written disapproval to the public 
     housing agency not later than 45 days after the date on which 
     the plan is submitted under subparagraph (A); and
       ``(ii) include reasonable provisions for the relocation of 
     low-income tenants in the event of displacement.
       ``(10) Additional performance requirements.--A description 
     of any additional performance standards established by the 
     public housing agency.
       ``(11) Annual audit.--The results of an annual audit of the 
     public housing agency, which shall be conducted by an 
     independent certified public accounting firm pursuant to 
     generally accepted accounting principles.
       ``(c) Local Advisory Board.--
       ``(1) In general.--
       ``(A) Establishment.--Each public housing agency shall 
     establish one or more local advisory boards in accordance 
     with this subsection, adequate to reflect and represent all 
     of the residents of dwelling units owned, operated, or 
     assisted by the public housing agency.
       ``(B) Inclusion in public housing agency plan.--The rules 
     governing each local advisory board shall be included in the 
     public housing agency plan of the public housing agency.

[[Page S13848]]

       ``(2) Membership.--Each local board established under this 
     subsection shall be composed of the following membership:
       ``(A) Not less than 60 percent of the board shall be 
     residents of dwelling units owned, operated, or assisted by 
     the public housing agency.
       ``(B) The remainder of the board shall be comprised of--
       ``(i) representatives of the community in which the public 
     housing agency is located; and
       ``(ii) local government officials of the community in which 
     the public housing agency is located.
       ``(3) Purpose.--Each local advisory board established under 
     this subsection shall assist and make recommendations in the 
     development of the public housing agency plan for submission 
     under this section. The public housing agency shall consider 
     the recommendations of the local advisory board in preparing 
     the final public housing agency plan, and shall include a 
     copy of such recommendations in the public housing agency 
     plan submitted to the Secretary under this section.
       ``(d) Publication of Notice.--
       ``(1) In general.--Not later than 45 days before adoption 
     of any public housing agency plan by the governing body of 
     the public housing agency, the public housing agency shall 
     publish a notice informing the public that--
       ``(A) the proposed public housing agency plan is available 
     for inspection at the principal office of the public housing 
     agency during normal business hours; and
       ``(B) a public hearing will be held to discuss the public 
     housing agency plan and to invite public comment thereon.
       ``(2) Public hearing.--Each public housing agency shall 
     conduct a public hearing, as provided in the notice published 
     under paragraph (1), not earlier than 30 days nor later than 
     50 days after the date on which the notice was published. 
     After such public hearing, the public housing agency shall, 
     after considering all public comments received and making any 
     changes it deems appropriate, adopt the public housing agency 
     plan and submit the plan to the Secretary in accordance with 
     this section.
       ``(e) Coordinated Procedures.--Each public housing agency 
     shall, in conjunction with the State or relevant unit of 
     general local government, establish procedures to ensure that 
     the public housing agency plan required by this section is 
     consistent with the applicable Comprehensive Housing 
     Affordability Strategy for the jurisdiction in which the 
     public housing agency is located, in accordance with title I 
     of the Cranston-Gonzalez National Affordable Housing Act.
       ``(f) Amendments and Modifications to Plans.--
       ``(1) In general.--Nothing in this section shall preclude a 
     public housing agency, after submitting a plan to the 
     Secretary in accordance with this section, from amending or 
     modifying any policy, rule, regulation, or plan of the public 
     housing agency, except that no such significant amendment or 
     modification may be implemented--
       ``(A) other than at a duly called meeting of commissioners 
     (or other comparable governing body) of the public housing 
     agency which is open to the public; and
       ``(B) until notification of such amendment or modification 
     is sent to the Secretary and approved in accordance with 
     subsection (g)(4).
       ``(2) Consistency.--Any significant amendment or 
     modification to a plan submitted to the Secretary under this 
     section shall--
       ``(A) comply with the requirements of subsection (a)(2); 
     and
       ``(B) be considered by the local board, as provided in 
     subsection (c).
       ``(g) Timing of Plans.--
       ``(1) In general.--
       ``(A) Initial submission.--Each public housing agency shall 
     submit the initial plan required by this section, and any 
     amendment or revision to the initial plan, to the Secretary 
     at such time and in such form as the Secretary shall require.
       ``(B) Annual submission.--Not later than 60 days prior to 
     the start of the fiscal year of the public housing agency, 
     after initial submission of the plan required by this section 
     in accordance with subparagraph (A), each public housing 
     agency shall annually submit to the Secretary a plan update, 
     including any amendments or reports containing information 
     constituting changes or modifications to the public housing 
     agency plan of the public housing agency.
       ``(2) Review and approval.--
       ``(A) Review.--After submission of the public housing 
     agency plan or any amendment or report of changes or 
     modifications to the plan to the Secretary, the Secretary 
     shall review the public housing agency plan, amendment, or 
     report to determine--
       ``(i) in the case of a public housing agency plan, whether 
     the contents of the plan--

       ``(I) set forth the information required by this section to 
     be contained in a public housing agency plan; and
       ``(II) are consistent with information and data available 
     to the Secretary; and

       ``(ii) in all cases, whether the activities proposed by the 
     plan, amendment, or report are prohibited by or inconsistent 
     with any provision of this title or other applicable law.
       ``(B) Approval.--
       ``(i) In general.--Except as provided in paragraph (3)(B), 
     not later than 45 days after the date on which a public 
     housing agency plan is submitted in accordance with this 
     section, the Secretary shall provide written notice to the 
     public housing agency if the plan has been disapproved, 
     stating with specificity the reasons for the disapproval.
       ``(ii) Failure to provide notice of disapproval.--If the 
     Secretary does not provide notice of disapproval under clause 
     (i) before the expiration of the 45-day period described in 
     clause (i), the public housing agency plan of the public 
     housing agency shall be deemed to be approved by the 
     Secretary.
       ``(3) Secretarial discretion.--
       ``(A) In general.--The Secretary shall have sole discretion 
     to require such additional information and performance 
     requirements as deemed appropriate for each public housing 
     agency that is designated by the Secretary as a troubled 
     public housing agency under section 6(j).
       ``(B) Troubled agencies.--The Secretary shall provide 
     explicit written approval or disapproval, in a timely manner, 
     for a public housing agency plan submitted by any public 
     housing agency designated by the Secretary as a troubled 
     public housing agency under section 6(j).
       ``(4) Streamlined plan.--In carrying out this section, the 
     Secretary may establish a streamlined public housing agency 
     plan for--
       ``(A) public housing agencies that are determined by the 
     Secretary to be high performing public housing agencies; and
       ``(B) public housing agencies with less than 250 units.''.
       (b) Interim Rule.--
       (1) In general.--Not later than January 1, 1996, the 
     Secretary shall issue an interim rule to require the 
     submission of an interim public housing agency plan by each 
     public housing agency, as required by section 5A of the 
     United States Housing Act of 1937 (as added by subsection (a) 
     of this section).
       (2) Regulations.--Not later than 1 year after the date of 
     enactment of this Act, the Secretary shall promulgate final 
     regulations implementing section 5A of the United States 
     Housing Act of 1937, as added by subsection (a) of this 
     section. Such regulations shall be subject to negotiated 
     rulemaking.

     SEC. 107. CONTRACT PROVISIONS AND REQUIREMENTS.

       (a) Conditions.--Section 6(a) of the United States Housing 
     Act of 1937 (42 U.S.C. 1437d(a)) is amended--
       (1) in the first sentence, by inserting ``, in a manner 
     consistent with the public housing agency plan submitted 
     under section 5A'' before the period; and
       (2) by striking the second sentence.
       (b) Revision of Maximum Income Limits; Certification of 
     Compliance With Requirements; Notification of Eligibility.--
     Section 6(c) of the United States Housing Act of 1937 (42 
     U.S.C. 1437d(c)) is amended to read as follows:
       ``(c) [Reserved.]''.
       (c) Excess Funds.--Section 6(e) of the United States 
     Housing Act of 1937 (42 U.S.C. 1437d(e)) is amended to read 
     as follows:
       ``(e) [Reserved.]''.
       (d) Performance Indicators for Public Housing Agencies.--
     Section 6(j) of the United States Housing Act of 1937 (42 
     U.S.C. 1437d(j)) is amended--
       (1) in paragraph (1)--
       (A) in subparagraph (B)--
       (i) by striking ``obligated'' and inserting ``provided''; 
     and
       (ii) by striking ``unexpended'' and inserting ``unobligated 
     by the public housing agency'';
       (B) in subparagraph (D), by striking ``energy'' and 
     inserting ``utility'';
       (C) by redesignating subparagraph (H) as subparagraph (J); 
     and
       (D) by adding at the end the following new paragraphs:
       ``(H) The extent to which the agency provides effective 
     programs and activities to promote the economic self-
     sufficiency of tenants.
       ``(I) The extent to which the agency successfully meets the 
     goals and carries out the activities and programs of the 
     public housing agency plan under section 5(A).''; and
       (2) in paragraph (2)(A)(i), by inserting after the first 
     sentence the following: ``The Secretary may use a simplified 
     set of indicators for public housing agencies with less than 
     250 units.''.
       (e) Leases.--Section 6(l) of the United States Housing Act 
     of 1937 (42 U.S.C. 1437d(l)) is amended--
       (1) in paragraph (3), by striking ``not be less than'' and 
     all that follows before the semicolon at the end and 
     inserting ``be the period of time required under State law''; 
     and
       (2) in paragraph (5), by striking ``on or near such 
     premises''.
       (f) Public Housing Assistance to Foster Care Children.--
     Section 6(o) of the United States Housing Act of 1937 (42 
     U.S.C. 1437d(o)) is amended by striking ``Subject'' and all 
     that follows through ``, in'' and inserting ``In''.
       (g) Preference for Areas With Inadequate Supply of Very 
     Low-Income Housing.--Section 6(p) of the United States 
     Housing Act of 1937 (42 U.S.C.1437d(p)) is amended to read as 
     follows:
       ``(p) [Reserved.]''.
       (h) Availability of Criminal Records for Screening and 
     Eviction; Eviction for Drug-Related Activity.--Section 6 of 
     the United States Housing Act of 1937 (42 U.S.C. 1437d) is 
     amended by adding at the end the following new subsections:
       ``(q) Availability of Records.--
       ``(1) In general.--
       ``(A) Provision of information.--Notwithstanding any other 
     provision of law, except 

[[Page S13849]]
     as provided in subparagraph (B), the National Crime Information Center, 
     a police department, and any other law enforcement agency 
     shall, upon request, provide information to public housing 
     agencies regarding the criminal conviction records of adult 
     applicants for, or residents of, public housing for purposes 
     of applicant screening, lease enforcement, and eviction.
       ``(B) Exception.--Except as provided under any provision of 
     State or local law, no law enforcement agency described in 
     subparagraph (A) shall provide information under this 
     paragraph relating to any criminal conviction if the date of 
     that conviction occurred 5 or more years prior to the date on 
     which the request for the information is made.
       ``(2) Opportunity to dispute.--Before an adverse action is 
     taken on the basis of a criminal record, the public housing 
     agency shall provide the resident or applicant with a copy of 
     the criminal record and an opportunity to dispute the 
     accuracy and relevance of that record.
       ``(3) Fee.--A public housing agency may be charged a 
     reasonable fee for information provided under paragraph (1).
       ``(4) Records management.--Each public housing agency shall 
     establish and implement a system of records management that 
     ensures that any criminal record received by the public 
     housing agency is--
       ``(A) maintained confidentially;
       ``(B) not misused or improperly disseminated; and
       ``(C) destroyed, once the purpose for which the record was 
     requested has been accomplished.
       ``(5) Definition.--For purposes of this subsection, the 
     term `adult' means a person who is 18 years of age or older, 
     or who has been convicted of a crime as an adult under any 
     Federal or State law.
       ``(r) Eviction for Drug-Related Activity.--Any resident 
     evicted from housing assisted under this title by reason of 
     drug-related criminal activity (as such term is defined in 
     section 8(f)(5)) shall not be eligible for housing assistance 
     under this title during the 3-year period beginning on the 
     date of such eviction, unless the evicted resident 
     successfully completes a rehabilitation program approved by 
     the public housing agency (which shall include a waiver of 
     this subsection if the circumstances leading to eviction no 
     longer exist).''.

     SEC. 108. EXPANSION OF POWERS.

       (a) In General.--Section 6(j)(3) of the United States 
     Housing Act of 1937 (42 U.S.C. 1437d(j)(3)) is amended--
       (1) in subparagraph (A)--
       (A) by redesignating clauses (iii) and (iv) as clauses (iv) 
     and (v), respectively; and
       (B) by inserting after clause (ii) the following new 
     clause:
       ``(iii) take possession of the public housing agency, 
     including any project or function of the agency, including 
     any project or function under any other provision of this 
     Act;'';
       (2) by redesignating subparagraphs (B) through (D) as 
     subparagraphs (E) through (G), respectively;
       (3) by inserting after subparagraph (A) the following new 
     subparagraphs:
       ``(B)(i) If a public housing agency is identified as 
     troubled under this subsection, the Secretary shall notify 
     the agency of the troubled status of the agency.
       ``(ii) The Secretary may give a public housing agency a 1-
     year period, beginning on the date on which the agency 
     receives notification from the Secretary of the troubled 
     status of the agency under clause (i), within which to 
     demonstrate improvement satisfactory to the Secretary. 
     Nothing in this clause shall preclude the Secretary from 
     taking any action the Secretary considers necessary before 
     the commencement or the expiration of the 1-year period 
     described in this clause.
       ``(iii) Upon the expiration of the 1-year period described 
     in clause (ii), or in the case of a public housing agency 
     identified as troubled before the effective date of this Act, 
     upon the expiration of the 1-year period commencing on that 
     date, if the troubled agency has not demonstrated improvement 
     satisfactory to the Secretary and the Secretary has not yet 
     declared the agency to be in breach of its contract with the 
     Federal Government under this Act, the Secretary shall 
     declare the public housing agency to be in substantial 
     default, as described in subparagraph (A).
       ``(iv) Upon declaration of a substantial default under 
     clause (iii), the Secretary--
       ``(I) shall either--

       ``(aa) petition for the appointment of a receiver pursuant 
     to subparagraph (A)(ii); or
       ``(bb) take possession of the public housing agency or any 
     development or developments of the public housing agency 
     pursuant to subparagraph (A)(iii); and

       ``(II) may, in addition, take other appropriate action.
       ``(C)(i) If a receiver is appointed pursuant to 
     subparagraph (A)(ii), in addition to the powers accorded by 
     the court appointing the receiver, the receiver--
       ``(I) may abrogate any contract that substantially impedes 
     correction of the substantial default;
       ``(II) may demolish and dispose of the assets of the public 
     housing agency, in accordance with section 18;
       ``(III) if determined to be appropriate by the Secretary, 
     may require the establishment, as permitted by applicable 
     State and local law, of one or more new public housing 
     agencies; and
       ``(IV) shall not be subject to any State or local law 
     relating to civil service requirements, employee rights, 
     procurement, or financial or administrative controls that, in 
     the determination of the receiver, substantially impedes 
     correction of the substantial default.
       ``(ii) For purposes of this subparagraph, the term `public 
     housing agency' includes any project or function of a public 
     housing agency, as appropriate, including any project or 
     function under any other provision of this Act.
       ``(D)(i) If the Secretary takes possession of a public 
     housing agency, or any project or function of the agency, 
     pursuant to subparagraph (A)(iii), the Secretary--
       ``(I) may abrogate any contract that substantially impedes 
     correction of the substantial default;
       ``(II) may demolish and dispose of the assets of the public 
     housing agency, in accordance with section 18;
       ``(III) may require the establishment, as permitted by 
     applicable State and local law, of one or more new public 
     housing agencies;
       ``(IV) shall not be subject to any State or local law 
     relating to civil service requirements, employee rights, 
     procurement, or financial or administrative controls that, in 
     the determination of the Secretary, substantially impedes 
     correction of the substantial default; and
       ``(V) shall have such additional authority as a district 
     court of the United States could confer under like 
     circumstances on a receiver to fulfill the purposes of the 
     receivership.
       ``(ii) The Secretary may appoint, on a competitive or 
     noncompetitive basis, an individual or entity as an 
     administrative receiver to assume the responsibilities of the 
     Secretary under this subparagraph for the administration of a 
     public housing agency. The Secretary may delegate to the 
     administrative receiver any or all of the powers given the 
     Secretary by this subparagraph, as the Secretary determines 
     to be appropriate.
       ``(iii) Regardless of any delegation under this 
     subparagraph, an administrative receiver may not require the 
     establishment of one or more new public housing agencies 
     pursuant to clause (i)(III), unless the Secretary first 
     approves an application by the administrative receiver to 
     authorize such establishment.
       ``(iv) For purposes of this subparagraph, the term `public 
     housing agency' includes any project or function of a public 
     housing agency, as appropriate, including any project or 
     function under any other provision of this Act.''; and
       (4) by adding at the end the following new subparagraph:
       ``(H) If the Secretary (or an administrative receiver 
     appointed by the Secretary) takes possession of a public 
     housing agency (including any project or function of the 
     agency) pursuant to subparagraph (A)(iii), or if a receiver 
     is appointed by a court pursuant to subparagraph (A)(ii), the 
     Secretary or receiver shall be deemed to be acting not in 
     that person's or entity's official capacity, but rather in 
     the capacity of the public housing agency, and any liability 
     incurred, regardless of whether the incident giving rise to 
     such liability occurred while the Secretary or receiver was 
     in possession of the public housing agency (including any 
     project or function of the agency), shall be the liability of 
     the public housing agency.''.
       (b) Applicability.--The amendments made by subsection (a) 
     shall apply to a public housing agency that is found to be in 
     substantial default, on or after the date of enactment of 
     this Act, with respect to the covenants or conditions to 
     which the agency is subject (as such substantial default is 
     defined in the contract for contributions of the agency) or 
     with respect to an agreement entered into under section 
     6(j)(2)(C) of the United States Housing Act of 1937.

     SEC. 109. PUBLIC HOUSING DESIGNATED FOR THE ELDERLY AND THE 
                   DISABLED.

       Section 7 of the United States Housing Act of 1937 (42 
     U.S.C. 1437e) is amended to read as follows:

     ``SEC. 7. AUTHORITY TO PROVIDE DESIGNATED HOUSING.

       ``(a) In General.--Notwithstanding any other provision of 
     law, a public housing agency may, in its discretion and 
     without approval by the Secretary, designate public housing 
     projects or mixed-income projects (or portions of projects) 
     for occupancy as elderly housing, disabled housing, or 
     elderly and disabled housing. The public housing agency shall 
     establish requirements for this section in the public housing 
     agency plan of the public housing agency.
       ``(b) Relocation Assistance.--A public housing agency that 
     converts any existing project or building, or portion 
     thereof, to elderly housing or disabled housing shall provide 
     to all persons or families who are to be relocated in 
     connection with the conversion--
       ``(1) notice of the conversion and relocation not less than 
     6 months before the date of such action;
       ``(2) comparable housing (including appropriate services 
     and design features) at a rental rate that is comparable to 
     that applicable to the unit from which the person or family 
     has vacated; and
       ``(3) payment of actual, reasonable moving expenses.
       ``(c) Comparable Housing.--For purposes of this section, 
     tenant-based assistance under section 8(o) shall be deemed to 
     be comparable housing, if the person or family who is 
     relocated may obtain with such assistance 

[[Page S13850]]
     housing that is generally comparable to the housing that was vacated at 
     a cost to the relocated person or family that is not in 
     excess of the amount previously paid for the housing vacated.
       ``(d) Uniform Relocation and Real Property Acquisition 
     Act.--The Uniform Relocation and Real Property Acquisition 
     Act shall not apply to activities under this section.''.

     SEC. 110. PUBLIC AND INDIAN HOUSING CAPITAL AND OPERATING 
                   FUNDS.

       Section 9 of the United States Housing Act of 1937 (42 
     U.S.C. 1437g) is amended to read as follows:

     ``SEC. 9. PUBLIC AND INDIAN HOUSING CAPITAL AND OPERATING 
                   FUNDS.

       ``(a) In General.--Except for assistance provided under 
     section 8, all programs under which assistance is provided 
     for public housing on the day before the effective date of 
     the Public Housing Reform and Empowerment Act of 1995 shall 
     be merged, as appropriate, into either--
       ``(1) the Capital Fund established under subsection (c); or
       ``(2) the Operating Fund established under subsection (d).
       ``(b) Use of Existing Funds.--With the exception of funds 
     made available pursuant to section 20(f) and funds 
     appropriated for the urban revitalization demonstration 
     program authorized under the Department of Veterans Affairs 
     and Housing and Urban Development, and Independent Agencies 
     Appropriations Acts--
       ``(1) funds made available to the Secretary for public 
     housing purposes that have not been obligated by the 
     Secretary to a public housing agency before the effective 
     date of the Public Housing Reform and Empowerment Act of 1995 
     shall be made available, for the period originally provided 
     in law, for use in either the Capital Fund or the Operating 
     Fund established under this section, as appropriate; and
       ``(2) funds made available to the Secretary for public 
     housing purposes that have been obligated by the Secretary to 
     a public housing agency but that, as of the effective date of 
     the Public Housing Reform and Empowerment Act of 1995, have 
     not been obligated by the public housing agency, may be made 
     available by that public housing agency, for the period 
     originally provided in law, for use in either the Capital 
     Fund or the Operating Fund established under this section, as 
     appropriate.
       ``(c) Capital Fund.--
       ``(1) In general.--The Secretary shall establish a Capital 
     Fund for the purpose of making grants to public housing 
     agencies principally--
       ``(A) to make physical improvements to, to replace, or 
     demolish public housing projects, or portions of projects; 
     and
       ``(B) for associated management improvements.
       ``(2) Grants.--The Secretary shall make grants to public 
     housing agencies to carry out capital and management 
     activities, including--
       ``(A) the development and modernization of public housing 
     projects, including the redesign, reconstruction, and 
     reconfiguration of public housing sites and buildings;
       ``(B) vacancy reduction;
       ``(C) addressing deferred maintenance needs and the 
     replacement of dwelling equipment;
       ``(D) planned code compliance;
       ``(E) management improvements;
       ``(F) community services;
       ``(G) demolition and replacement;
       ``(H) tenant relocation; and
       ``(I) activities to improve the economic empowerment and 
     self-sufficiency of public housing tenants.
       ``(3) Limit on use of funds.--Each public housing agency 
     may use not more than 20 percent of the Capital Fund 
     distribution of the public housing agency for activities 
     under the Operating Fund of the public housing agency 
     pursuant to subsection (d), provided that the public housing 
     agency plan provides for such use.
       ``(d) Operating Fund.--
       ``(1) In general.--The Secretary shall establish an 
     Operating Fund for the purpose of making assistance available 
     to public housing agencies for the operation and management 
     of public housing.
       ``(2) Grants.--The Secretary shall make grants to public 
     housing agencies to carry out activities that relate to the 
     operation and management of public housing, including--
       ``(A) anti-crime and anti-drug activities (including those 
     activities eligible for assistance under the Public and 
     Assisted Housing Drug Elimination Act of 1990 and the Drug-
     Free Public Housing Act of 1988); and
       ``(B) activities related to the provision of service 
     coordinators for elderly persons or persons with disabilities 
     pursuant to section 673 of the Housing and Community 
     Development Act of 1992.
       ``(e) Establishment of Formulae.--
       ``(1) In general.--The Secretary shall establish formulae 
     for providing assistance under the Capital Fund and the 
     Operating Fund under this subsection.
       ``(2) Formulae Requirements.--The formulae established 
     under paragraph (1) shall include the following:
       ``(A) The needs of public housing agencies as identified 
     through their public housing agency plans submitted under 
     section 5A.
       ``(B) The number of public housing dwelling units owned and 
     operated by a housing management agency and occupied by low-
     income families (including the costs of conversion to tenant-
     based assistance under section 22).
       ``(C) The extent to which public housing agencies provide 
     programs and activities designed to promote the economic 
     self-sufficiency of tenants.
       ``(D) The age, condition, and density of the low-income 
     housing owned or operated by the agency.
       ``(E) The number of dwelling units owned and operated by 
     the housing management agency that are chronically vacant and 
     the amount of assistance appropriate for such units.
       ``(F) The amount of assistance necessary to provide 
     rehabilitation and operating expenses for public housing 
     dwelling units including the amount of assistance to provide 
     a safe environment.
       ``(3) Transition formula.--The transition formula shall 
     provide that each public housing agency shall receive that 
     percentage of funds which represents the percentage of funds 
     that the public housing agency received, on average, for 
     modernization costs and operating expenses during the 3 
     fiscal years of that public housing agency preceding 
     implementation of a formula established under paragraph (1).
       ``(4) Procedures.--The Secretary shall establish formulae 
     under paragraph (1) through negotiated rulemaking, and shall 
     submit the formulae to the Congress for review not later than 
     2 years after the date of enactment of the Public Housing 
     Reform and Empowerment Act of 1995.
       ``(5) Approval.--Unless the Congress acts to disapprove a 
     formula submitted under this subsection, the formula shall be 
     presumed to be approved until a revised formula is adopted.
       ``(6) Operating and capital assistance.--A resident 
     management corporation managing a public housing development 
     pursuant to a contract under this section shall be provided 
     directly by the Secretary with operating and capital 
     assistance under this title for purposes of operating the 
     development and performing such other eligible activities 
     with respect to the development as may be provided under the 
     contract.
       ``(f) Native American Housing Programs.--Notwithstanding 
     any other provision of law, from amounts appropriated for the 
     Capital Fund or the Operating Fund, the Secretary shall 
     establish such formulae and programs as may be necessary to 
     provide such sums as may be necessary to carry out housing 
     programs for Indians.
       ``(g) Technical Assistance.--To the extent approved in 
     appropriations Acts for grants, the Secretary may provide--
       ``(1) technical assistance to public housing agencies, 
     resident councils, resident organizations, and resident 
     management corporations, including monitoring, inspections, 
     training for public housing agency employees and residents, 
     and data collection and analysis; and
       ``(2) remedial activities associated with troubled public 
     housing agencies, as such agencies are so designated under 
     section 6(j).
       ``(h) Funding for Resident Councils.--Of any amounts made 
     available in any fiscal year to carry out this section, 
     $25,000,000 shall be made available to resident councils, 
     resident organizations, or resident management corporations, 
     on a competitive basis, to carry out resident management 
     activities, and other activities designed to improve the 
     economic self-sufficiency of public housing residents.
       ``(i) Emergency Reserve.--
       ``(1) In general.--
       ``(A) Set-aside.--In each fiscal year, the Secretary shall 
     set aside an amount not to exceed 2 percent of the amount 
     appropriated to carry out this section for that fiscal year 
     for use in accordance with this subsection.
       ``(B) Use of funds.--Amounts set aside under this paragraph 
     shall be available to the Secretary for use in connection 
     with emergencies, and to fund the cost of demolitions, 
     modernization, and other activities if the Capital Fund and 
     Operating Fund distributions of any public housing agency are 
     not adequate to carry out activities relating to the goal of 
     the public housing agency of providing decent, safe, and 
     affordable housing in viable communities.
       ``(2) Allocation.--Amounts set aside under this paragraph 
     shall be allocated pursuant to a competition based upon 
     relative need to such public housing agencies, in such 
     manner, and in such amounts as the Secretary shall 
     determine.''.

     SEC. 111. LABOR STANDARDS.

       Section 12 of the United States Housing Act of 1937 (42 
     U.S.C. 1437j) is amended by adding at the end the following 
     new subsection:
       ``(c) Work Requirement.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, each adult member of each household assisted under this 
     Act shall contribute not less than 8 hours of volunteer work 
     per month within the community of that adult.
       ``(2) Inclusion in plan.--Each public housing agency shall 
     include in the plan submitted to the Secretary under section 
     5A, a detailed description of how the public housing agency 
     intends to implement and administer the requirements of 
     paragraph (1).
       ``(3) Exemptions.--The Secretary may provide an exemption 
     from the requirements of paragraph (1) for any individual who 
     is--
       ``(A) not less than 62 years of age;
       ``(B) a person with disabilities who is unable, as 
     determined in accordance with guidelines established by the 
     Secretary, to comply with this section; or 

[[Page S13851]]

       ``(C) working full-time, a student, receiving vocational 
     training, or otherwise meeting work requirements of a public 
     assistance program.''.

     SEC. 112. REPEAL OF ENERGY CONSERVATION; CONSORTIA AND JOINT 
                   VENTURES.

       Section 13 of the United States Housing Act of 1937 (42 
     U.S.C. 1437k) is amended to read as follows:

     ``SEC. 13. CONSORTIA, JOINT VENTURES, AFFILIATES, AND 
                   SUBSIDIARIES OF PUBLIC HOUSING AGENCIES.

       ``(a) Consortia.--
       ``(1) In general.--Any 2 or more public housing agencies 
     may participate in a consortium for the purpose of 
     administering any or all of the housing programs of those 
     public housing agencies in accordance with this section.
       ``(2) Effect.--With respect to any consortium described in 
     paragraph (1)--
       ``(A) any assistance made available under this title to 
     each of the public housing agencies participating in the 
     consortium shall be paid to the consortium; and
       ``(B) all planning and reporting requirements imposed upon 
     each public housing agency participating in the consortium 
     with respect to the programs operated by the consortium shall 
     be consolidated.
       ``(3) Restrictions.--
       ``(A) Agreement.--Each consortium described in paragraph 
     (1) shall be formed and operated in accordance with a 
     consortium agreement, and shall be subject to the 
     requirements of a joint public housing agency plan, which 
     shall be submitted by the consortium in accordance with 
     section 5A.
       ``(B) Minimum requirements.--The Secretary shall specify 
     minimum requirements relating to the formation and operation 
     of consortia and the minimum contents of consortium 
     agreements under this paragraph.
       ``(b) Joint Ventures.--
       ``(1) In general.--Notwithstanding any other provision of 
     law, a public housing agency, in accordance with its public 
     housing agency plan submitted under section 5A, may--
       ``(A) form and operate wholly owned or controlled 
     subsidiaries (which may be nonprofit corporations) and other 
     affiliates, any of which may be directed, managed, or 
     controlled by the same persons who constitute the board of 
     commissioners or other similar governing body of the public 
     housing agency, or who serve as employees or staff of the 
     public housing agency; or
       ``(B) enter into joint ventures, partnerships, or other 
     business arrangements with, or contract with, any person, 
     organization, entity, or governmental unit, with respect to 
     the administration of the programs of the public housing 
     agency, including any program that is subject to this title.
       ``(2) Use of income.--Any income generated under paragraph 
     (1) shall be used for low-income housing or to benefit the 
     tenants of the public housing agency.
       ``(3) Audits.--The Secretary may conduct an audit of any 
     activity undertaken under paragraph (1) at any time.''.

     SEC. 113. REPEAL OF MODERNIZATION FUND.

       Section 14 of the United States Housing Act of 1937 (42 
     U.S.C. 1437l) is repealed.

     SEC. 114. INCOME ELIGIBILITY FOR ASSISTED HOUSING.

       Section 16 of the United States Housing Act of 1937 (42 
     U.S.C. 1437n) is amended to read as follows:

     ``SEC. 16. INCOME ELIGIBILITY FOR ASSISTED HOUSING.

       ``(a) In General.--
       ``(1) Initial occupancy by certain households.--Of the 
     dwelling units of a public housing agency, including public 
     housing units in a designated mixed-income project, made 
     available for initial occupancy--
       ``(A) not less than 40 percent shall be occupied by 
     households whose incomes do not exceed 30 percent of the area 
     median income for such households; and
       ``(B) any remaining dwelling units may be made available 
     for households whose incomes do not exceed 80 percent of the 
     area median income for such households.
       ``(2) Establishment of different standards.--
     Notwithstanding paragraph (1), if approved by the Secretary, 
     a public housing agency may for good cause establish and 
     implement an occupancy standard other than the standard 
     described in paragraph (1).
       ``(b) Applicability to Indian Housing.--Subsection (a) 
     shall not apply to any dwelling unit assisted by an Indian 
     housing agency.''.

     SEC. 115. DEMOLITION AND DISPOSITION OF PUBLIC HOUSING.

       (a) In General.--Section 18 of the United States Housing 
     Act of 1937 (42 U.S.C. 1437p) is amended to read as follows:

     ``SEC. 18. DEMOLITION AND DISPOSITION OF PUBLIC HOUSING.

       ``(a) Applications for Demolition and Disposition.--Not 
     later than 60 days after receiving an application by a public 
     housing agency for authorization, with or without financial 
     assistance under this title, to demolish or dispose of a 
     public housing project or a portion of a public housing 
     project, the Secretary shall approve the application, if the 
     public housing agency certifies--
       ``(1) in the case of--
       ``(A) an application proposing demolition of a public 
     housing project or a portion of a public housing project, 
     that--
       ``(i) the project or portion of the project is obsolete as 
     to physical condition, location, or other factors, making it 
     unsuitable for housing purposes; and
       ``(ii) no reasonable program of modifications is cost-
     effective to return the project or portion of the project to 
     useful life; and
       ``(B) an application proposing the demolition of only a 
     portion of a project, that the demolition will help to assure 
     the useful life of the remaining portion of the project;
       ``(2) in the case of an application proposing disposition 
     of public housing project or other real property subject to 
     this title by sale or other transfer, that--
       ``(A) the retention of the property is not in the best 
     interests of the residents or the public housing agency 
     because--
       ``(i) conditions in the area surrounding the project 
     adversely affect the health or safety of the residents or the 
     feasible operation of the project by the public housing 
     agency; or
       ``(ii) disposition allows the acquisition, development, or 
     rehabilitation of other properties that will be more 
     efficiently or effectively operated as low-income housing;
       ``(B) the public housing agency has otherwise determined 
     the disposition to be appropriate for reasons that are--
       ``(i) in the best interests of the residents and the public 
     housing agency;
       ``(ii) consistent with the goals of the public housing 
     agency and the public housing agency plan of the public 
     housing agency; and
       ``(iii) otherwise consistent with this title; or
       ``(C) for property other than dwelling units, the property 
     is excess to the needs of a public housing project or the 
     disposition is incidental to, or does not interfere with, 
     continued operation of a public housing project;
       ``(3) that the public housing agency has specifically 
     authorized the demolition or disposition in the public 
     housing agency plan of the public housing agency submitted 
     under section 5A, and has certified that the actions 
     contemplated in the public housing agency plan comply with 
     the requirements of this section;
       ``(4) that the public housing agency--
       ``(A) will provide for the payment of the relocation 
     expenses of each resident to be displaced;
       ``(B) will ensure that the amount of rent paid by the 
     tenant following relocation will not exceed the amount 
     permitted under this Act; and
       ``(C) will not commence demolition or disposition until all 
     tenants residing in the unit are relocated;
       ``(5) that the net proceeds of any disposition will be 
     used--
       ``(A) unless waived by the Secretary, for the retirement of 
     outstanding obligations issued to finance the original public 
     housing project or modernization of the project; and
       ``(B) to the extent that any proceeds remain after the 
     application of proceeds in accordance with subparagraph (A), 
     for the provision of low-income housing or to benefit the 
     tenants of the public housing agency; and
       ``(6) that the public housing agency has complied with 
     subsection (b).
       ``(b) Tenant Opportunity To Purchase in Case of Proposed 
     Disposition.--
       ``(1) In general.--In the case of a proposed disposition of 
     a public housing project or portion of a project, the public 
     housing agency shall, in appropriate circumstances, as 
     determined by the Secretary, initially offer the property to 
     any eligible resident organization, eligible resident 
     management corporation, or nonprofit organization for resale 
     to low-income families, if such entity--
       ``(A) is operating only at the public housing project that 
     is the subject of the disposition; and
       ``(B) has expressed an interest, in writing, to the public 
     housing agency in a timely manner, in purchasing the property 
     for continued use as low-income housing.
       ``(2) Timing.--
       ``(A) Thirty-day notice.--A resident organization, resident 
     management corporation, or other entity referred to in 
     paragraph (1) may express interest in purchasing property 
     that is the subject of a disposition, as described in 
     paragraph (1), during the 30-day period beginning on the date 
     of notification of a proposed sale of the property.
       ``(B) Sixty-day notice.--If an entity expresses written 
     interest in purchasing a property, as provided in 
     subparagraph (A), no disposition of the property shall occur 
     during the 60-day period beginning on the date of receipt of 
     such written notice, during which time that entity shall be 
     given the opportunity to obtain a firm commitment for 
     financing the purchase of the property.
       ``(c) Homeownership Activities.--This section does not 
     apply to the disposition of a public housing project, or any 
     portion thereof, in accordance with a homeownership program 
     under which the property is sold or conveyed to low-income 
     persons or families or to an organization acting as a conduit 
     for sales or conveyances to such persons or families.
       ``(d) Replacement Units.--Notwithstanding any other 
     provision of law, replacement housing units for public 
     housing units demolished in accordance with this section may 
     be built on the original public housing location or in the 
     same neighborhood as the original public housing location if 
     the number of such replacement units is fewer than the number 
     of units demolished.''.
       (b) Homeownership Replacement Plan.--
       (1) In general.--Section 304(g) of the United States 
     Housing Act of 1937 (42 U.S.C. 1437aaa-3(g)), as amended by 
     section 1002(b) of the Emergency Supplemental Appropriations 
     for Additional Disaster Assistance, for Anti-terrorism 
     Initiatives, for Assistance in 

[[Page S13852]]
     the Recovery from the Tragedy that Occurred At Oklahoma City, and 
     Rescissions Act, 1995, is amended to read as follows:
       ``(g) [Reserved.]''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall be effective for plans for the demolition, disposition, 
     or conversion to homeownerhsip of public housing approved by 
     the Secretary after September 30, 1995.
       (c) Uniform Relocation and Real Property Acquisition Act.--
     The Uniform Relocation and Real Property Acquisition Act 
     shall not apply to activities under section 18 of the United 
     States Housing Act of 1937, as amended by this section.

     SEC. 116. REPEAL OF FAMILY INVESTMENT CENTERS; VOUCHERS FOR 
                   PUBLIC HOUSING.

       (a) In General.--Section 22 of the United States Housing 
     Act of 1937 (42 U.S.C. 1437t) is amended to read as follows:

     ``SEC. 22. VOUCHERS FOR PUBLIC HOUSING.

       ``(a) In General.--
       ``(1) Authorization.--A public housing agency may convert 
     any public housing project (or portion thereof) owned and 
     operated by the public housing agency to a system of tenant-
     based assistance in accordance with this section.
       ``(2) Requirements.--In making a conversion under this 
     section, the public housing agency shall develop a conversion 
     plan and an assessment under subsection (b) in consultation 
     with the appropriate public housing officials and residents, 
     which plan and assessment shall be consistent with and part 
     of the public housing agency plan submitted under section 5A, 
     and shall describe the conversion and future use or 
     disposition of the public housing project, including an 
     impact analysis on the affected community.
       ``(b) Conversion Assessment.--
       ``(1) In general.--Not later than 2 years after the date of 
     enactment of the Public Housing Reform and Empowerment Act of 
     1995, each public housing agency shall assess the status of 
     each public housing project owned and operated by that public 
     housing agency and shall submit to the Secretary a report 
     that includes--
       ``(A) a cost analysis of the public housing project, 
     including costs attributable to the physical condition, 
     modernization needs, operating costs, and market value (both 
     before and after rehabilitation) of the project;
       ``(B) a market analysis of the public housing project, 
     including an evaluation of the availability of rental 
     dwelling units at or below the fair market rent in the market 
     area in which the public housing project is located; and
       ``(C) the impact of the conversion on the neighborhood in 
     which the public housing project is located.
       ``(2) Streamlined assessment.--The Secretary may waive or 
     otherwise require a streamlined assessment at the request of 
     the public housing agency.
       ``(c) Cost of Conversion.--The cost of any conversion under 
     this section shall be payable from funds made available from 
     the Capital Fund and the Operating Fund established under 
     section 9 attributable to the converted public housing and 
     any additional funds made available by the Secretary or in an 
     appropriations Act.''.
       (b) Savings Provision.--The amendment made by subsection 
     (a) does not affect any contract or other agreement entered 
     into under section 23 of the United States Housing Act of 
     1937, as that section existed on the day before the date of 
     enactment of this Act.

     SEC. 117. REPEAL OF FAMILY SELF-SUFFICIENCY; HOMEOWNERSHIP 
                   OPPORTUNITIES.

       (a) In General.--Section 23 of the United States Housing 
     Act of 1937 (42 U.S.C.1437u) is amended to read as follows:

     ``SEC. 23. PUBLIC HOUSING HOMEOWNERSHIP OPPORTUNITIES.

       ``(a) In General.--Notwithstanding any other provision of 
     law, a public housing agency may sell low-income dwelling 
     units, to the low-income residents of the public housing 
     agency, to other low-income persons or families, or to 
     organizations serving as conduits for sales to such persons.
       ``(b) Sale Prices, Terms and Conditions.--Any sales under 
     subsection (a) may involve such sales prices, terms, and 
     conditions as the public housing agency may determine in 
     accordance with procedures set forth in the public housing 
     agency plan of the public housing agency submitted under 
     section 5A.
       ``(c) Protection of Nonpurchasing Families.--If a tenant 
     decides not to purchase a unit, or is not qualified to do so, 
     the public housing agency shall--
       ``(1) ensure that rental assistance under section 8 is made 
     available to the tenant; and
       ``(2) provide for the payment of the reasonable relocation 
     expenses of the tenant.
       ``(d) Net Proceeds.--The net proceeds of any sales under 
     this section remaining after payment of all costs of the sale 
     and any unassumed, unpaid indebtedness owed in connection 
     with the dwelling units sold unless waived by the Secretary, 
     shall be used for purposes relating to low-income housing and 
     in accordance with the public housing agency plan of the 
     public housing agency submitted under section 5A.''.
       (b) Savings Provision.--The amendment made by subsection 
     (a) does not affect any contract or other agreement entered 
     into under section 23 of the United States Housing Act of 
     1937, as that section existed on the day before the date of 
     enactment of this Act.

     SEC. 118. CONVERSION OF DISTRESSED PUBLIC HOUSING TO 
                   VOUCHERS.

       (a) In General.--Title I of the United States Housing Act 
     of 1937 (42 U.S.C. 1437 et seq.) is amended by adding at the 
     end the following new section:

     ``SEC. 28. CONVERSION OF DISTRESSED PUBLIC HOUSING TO 
                   VOUCHERS.

       ``(a) Identification of Units.--Each public housing agency 
     shall identify any public housing developments--
       ``(1) that are on the same or contiguous sites;
       ``(2) that total more than--
       ``(A) 600 dwelling units; or
       ``(B) in the case of high-rise family buildings or 
     substantially vacant buildings, 300 dwelling units;
       ``(3) that have a vacancy rate of at least 10 percent for 
     dwelling units not in funded, on-schedule modernization 
     programs;
       ``(4) identified as distressed housing that the public 
     housing agency cannot assure the long-term viability as 
     public housing through density reduction, achievement of a 
     broader range of household income, or other measures; and
       ``(5) for which the estimated cost of continued operation 
     and modernization of the developments as public housing 
     exceeds the cost of providing tenant-based assistance under 
     section 8 for all families in occupancy.
       ``(b) Consultation.--Each public housing agency shall 
     consult with the applicable public housing tenants and the 
     unit of general local government in identifying any public 
     housing under subsection (a).
       ``(c) Removal of Units From the Inventories of Public 
     Housing Agencies.--
       ``(1) In general.--Each public housing agency shall develop 
     a plan in conjunction with the Secretary for the removal of 
     public housing units identified under subsection (a), over a 
     period of not more than 5 years, from the inventory of the 
     public housing agency and the annual contributions contract. 
     The plan shall be approved as part of the public housing 
     agency plan under section 5A and by the relevant local 
     official as consistent with the Comprehensive Housing 
     Affordability Strategy under title I of the Housing and 
     Community Development Act of 1992, including a description of 
     any disposition and demolition plan for the public housing 
     units.
       ``(2) Extensions.--The Secretary may extend the deadline in 
     paragraph (1) by not more than 5 years if the Secretary makes 
     a determination that the deadline is impracticable.
       ``(3) Demolition and disposition.--To the extent approved 
     in advance in an appropriations Act, the Secretary may 
     establish requirements and provide funding under the Urban 
     Revitalization Demonstration program for demolition and 
     disposition of public housing under this section.
       ``(d) Conversion to Tenant-Based Assistance.--
       ``(1) In general.--The Secretary shall make authority 
     available to a public housing agency to provide tenant-based 
     assistance pursuant to section 8 to families residing in any 
     development that is removed from the inventory of the public 
     housing agency and the annual contributions contract pursuant 
     to subsection (b).
       ``(2) Conversion plans.--Each conversion plan under 
     subsection (c) shall--
       ``(A) require the agency to notify families residing in the 
     development, consistent with any guidelines issued by the 
     Secretary governing such notifications, that the development 
     shall be removed from the inventory of the public housing 
     agency and the families shall receive tenant-based or 
     project-based assistance, and to provide any necessary 
     counseling for families; and
       ``(B) ensure that all tenants affected by a determination 
     under this section that a development shall be removed from 
     the inventory of a public housing agency shall be offered 
     tenant-based or project-based assistance and shall be 
     relocated to other decent, safe, and affordable housing that 
     is, to the maximum extent practicable, housing of their 
     choice.
       ``(e) Administration.--
       ``(1) In general.--The Secretary may require a public 
     housing agency to provide such information as the Secretary 
     considers necessary for the administration of this section.
       ``(2) Applicability of section 18.--Section 18 does not 
     apply to the demolition of developments removed from the 
     inventory of the public housing agency under this section.''.

     SEC. 119. APPLICABILITY TO INDIAN HOUSING.

       In accordance with section 201(b)(2) of the United States 
     Housing Act of 1937, except as otherwise provided in this 
     Act, this title and the amendments made by this title shall 
     apply to public housing developed or operated pursuant to a 
     contract between the Secretary and an Indian housing 
     authority, as such term is defined in section 3(b) of the 
     United States Housing Act of 1937.
                 TITLE II--SECTION 8 RENTAL ASSISTANCE

     SEC. 201. MERGER OF THE CERTIFICATE AND VOUCHER PROGRAMS.

       Section 8(o) of the United States Housing Act of 1937 (42 
     U.S.C. 1437f(o)) is amended to read as follows:
       ``(o) Voucher Program.--
       ``(1) Payment standard.--
       ``(A) In general.--The Secretary may provide assistance to 
     public housing agencies for tenant-based assistance using a 
     payment standard established in accordance with subparagraph 
     (B). The payment standard shall be used to determine the 
     monthly assistance that may be paid for any family, as 
     provided in paragraph (2).

[[Page S13853]]

       ``(B) Establishment of payment standard.--The payment 
     standard shall not exceed 120 percent of the fair market 
     rental established under subsection (c) and shall be not less 
     than 80 percent of that fair market rental.
       ``(C) Set-aside.--The Secretary may set aside not more than 
     5 percent of the budget authority available under this 
     subsection as an adjustment pool. The Secretary shall use 
     amounts in the adjustment pool to make adjusted payments to 
     public housing agencies under subparagraph (A), to ensure 
     continued affordability, if the Secretary determines that 
     additional assistance for such purpose is necessary, based on 
     documentation submitted by a public housing agency.
       ``(D) Approval.--The public housing agency shall submit the 
     payment standard of the public housing agency as part of the 
     public housing agency plan submitted under section 5A.
       ``(E) Review.--The Secretary shall monitor rent burdens and 
     review any payment standard that results in a significant 
     percentage of the families occupying units of any size paying 
     more than 30 percent of adjusted income for rent. The 
     Secretary shall require each public housing agency to modify 
     the payment standard based on the results of such review.
       ``(2) Amount of monthly assistance payment.--
       ``(A) Families receiving tenant-based assistance; rent does 
     not exceed payment standard.--For a family receiving tenant-
     based assistance under this title, if the rent for that 
     family (including the amount allowed for tenant-paid 
     utilities) does not exceed the payment standard established 
     under paragraph (1), the monthly assistance payment to that 
     family shall be equal to the amount by which the rent exceeds 
     the greatest of the following amounts, rounded to the nearest 
     dollar:
       ``(i) Thirty percent of the monthly adjusted income of the 
     family.
       ``(ii) Ten percent of the monthly income of the family.
       ``(iii) If the family is receiving payments for welfare 
     assistance from a public agency and a part of such payments, 
     adjusted in accordance with the actual housing costs of the 
     family, is specifically designated by such agency to meet the 
     housing costs of the family, the portion of such payments 
     that is so designated.
       ``(B) Families receiving tenant-based assistance; rent 
     exceeds payment standard.--For a family receiving tenant-
     based assistance under this title, if the rent for that 
     family (including the amount allowed for tenant-paid 
     utilities) exceeds the payment standard established under 
     paragraph (1), the monthly assistance payment to that family 
     shall be equal to the amount by which the applicable payment 
     standard exceeds the greatest of the following amounts, 
     rounded to the nearest dollar:
       ``(i) Thirty percent of the monthly adjusted income of the 
     family.
       ``(ii) Ten percent of the monthly income of the family.
       ``(iii) If the family is receiving payments for welfare 
     assistance from a public agency and a part of such payments, 
     adjusted in accordance with the actual housing costs of the 
     family, is specifically designated by such agency to meet the 
     housing costs of the family, the portion of such payments 
     that is so designated.
       ``(C) Families receiving project-based assistance.--For a 
     family receiving project-based assistance under this title, 
     the rent that the family is required to pay shall be 
     determined in accordance with section 3(a)(1), and the amount 
     of the housing assistance payment shall be determined in 
     accordance with subsection (c)(3) of this section.
       ``(3) Forty percent limit.--At the time at which a family 
     initially receives tenant-based assistance under this title 
     with respect to any dwelling unit, the total amount that a 
     family may be required to pay for rent may not exceed 40 
     percent of the monthly adjusted income of the family.
       ``(4) Eligible families.--At the time at which a family 
     initially receives assistance under this subsection, a family 
     shall qualify as--
       ``(A) a very low-income family;
       ``(B) a family previously assisted under this title;
       ``(C) a low-income family that meets eligibility criteria 
     specified by the public housing agency;
       ``(D) a family that qualifies to receive a voucher in 
     connection with a homeownership program approved under title 
     IV of the Cranston-Gonzalez National Affordable Housing Act; 
     or
       ``(E) a family that qualifies to receive a voucher under 
     section 223 or 226 of the Low-Income Housing Preservation and 
     Resident Homeownership Act of 1990.
       ``(5) Annual review of family income.--Each public housing 
     agency shall, not less frequently than annually, conduct a 
     review of the family income of each family receiving 
     assistance under this subsection.
       ``(6) Selection of families.--
       ``(A) In general.--Each public housing agency may establish 
     local preferences consistent with its public housing agency 
     plan submitted under section 5A.
       ``(B) Eviction for drug-related activity.--Any individual 
     or family evicted from housing assisted under this subsection 
     by reason of drug-related criminal activity (as defined in 
     subsection (f)(5)) shall not be eligible for housing 
     assistance under this title during the 3-year period 
     beginning on the date of such eviction, unless the evicted 
     tenant successfully completes a rehabilitation program 
     approved by the public housing agency (which shall include 
     waiver for any member of the family of an individual 
     prohibited from receiving assistance under this title whom 
     the public housing agency determines clearly did not 
     participate in and had no knowledge of such criminal 
     activity, or if the circumstances leading to the eviction no 
     longer exist).
       ``(C) Selection of tenants.--The selection of tenants shall 
     be made by the owner of the dwelling unit, subject to the 
     annual contributions contract between the Secretary and the 
     public housing agency.
       ``(7) Lease.--Each housing assistance payment contract 
     entered into by the public housing agency and the owner of a 
     dwelling unit shall provide that--
       ``(A) the screening and selection of households for such 
     units shall be the function of the owner;
       ``(B) the lease between the tenant and the owner shall be 
     for a term of not less than 1 year, except that the public 
     housing agency may approve a shorter term for an initial 
     lease between the tenant and the dwelling unit owner if the 
     public housing agency determines that such shorter term would 
     improve housing opportunities for the tenant;
       ``(C) except as otherwise provided by the public housing 
     agency, may provide for a termination of the tenancy of a 
     resident assisted under this subsection after 1 year;
       ``(D) the dwelling unit owner shall offer leases to tenants 
     assisted under this subsection that are--
       ``(i) in a standard form used in the locality by the 
     dwelling unit owner; and
       ``(ii) contain terms and conditions that--

       ``(I) are consistent with State and local law; and
       ``(II) apply generally to tenants in the property who are 
     not assisted under this section;

       ``(E) the dwelling unit owner may not terminate the tenancy 
     of any person assisted under this subsection during the term 
     of a lease that meets the requirements of this section unless 
     the owner determines, on the same basis and in the same 
     manner as would apply to a tenant in the property who does 
     not receive assistance under this subsection, that--
       ``(i) the tenant has committed a serious violation of the 
     terms and conditions of the lease;
       ``(ii) the tenant has violated applicable Federal, State, 
     or local law; or
       ``(iii) other good cause for termination of the tenancy 
     exists; and
       ``(F) any termination of tenancy under this subsection 
     shall be preceded by the provision of written notice by the 
     owner to the tenant specifying the grounds for such action, 
     and any relief shall be consistent with applicable State and 
     local law.
       ``(8) Inspection of units by public housing agencies.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     for each dwelling unit for which a housing assistance payment 
     contract is established under this subsection, the public 
     housing agency shall--
       ``(i) inspect the unit before any assistance payment is 
     made to determine whether the dwelling unit meets housing 
     quality standards for decent and safe housing established--

       ``(I) by the Secretary for purposes of this subsection; or
       ``(II) by local housing codes that exceed housing quality 
     standards or by housing agency-designed codes that exceed 
     housing quality standards; and

       ``(ii) make periodic inspections during the contract term.
       ``(B) Leasing of units owned by public housing agency.--If 
     an eligible household assisted under this subsection leases a 
     dwelling unit that is owned by a public housing agency 
     administering assistance under this subsection, the Secretary 
     shall require the unit of general local government, or 
     another entity approved by the Secretary, to make inspections 
     and rent determinations as required by this paragraph.
       ``(9) Expedited inspection procedures.--The Secretary shall 
     establish a demonstration project to identify efficient 
     procedures to determine whether units meet housing quality 
     standards for decent and safe housing established by the 
     Secretary. The demonstration project shall include the 
     development of procedures to be followed in any case in which 
     a family receiving tenant-based assistance under this 
     subsection is moving into a dwelling unit, or in which a 
     family notifies the Secretary that a dwelling unit in which 
     they no longer live fails to meet housing quality standards. 
     The Secretary shall also establish procedures for the 
     expedited repair and inspection of units that do not meet 
     housing quality standards.
       ``(10) Vacated units.--If a family vacates a dwelling unit, 
     no assistance payment may be made under this subsection for 
     the dwelling unit after the month during which the unit was 
     vacated.
       ``(11) Rent.--
       ``(A) Reasonable market rent.--The rent for dwelling units 
     for which a housing assistance payment contract is 
     established under this subsection shall be reasonable in 
     comparison with rents charged for comparable dwelling units 
     in the private, unassisted, local market.
       ``(B) Negotiated rent.--A public housing agency shall, at 
     the request of a family receiving tenant-based assistance 
     under this 

[[Page S13854]]
     subsection, assist such family in negotiating a reasonable rent with a 
     dwelling unit owner. A public housing agency shall review the 
     rent for a unit under consideration by the family (and all 
     rent increases for units under lease by the family) to 
     determine whether the rent (or rent increase) requested by 
     the owner is reasonable. If a public housing agency 
     determines that the rent (or rent increase) for a dwelling 
     unit is not reasonable, the public housing agency shall not 
     make housing assistance payments to the owner under this 
     subsection with respect to such unit.
       ``(C) Units exempt from local rent control.--If a dwelling 
     unit for which a housing assistance payment contract is 
     established under this subsection is exempt from local rent 
     control provisions during the term of such contract, the rent 
     for such unit shall be reasonable in comparison with other 
     units in the market area that are exempt from local rent 
     control provisions.
       ``(D) Timely payments.--Each public housing agency shall 
     make timely payment of any amounts due to a dwelling unit 
     owner under this subsection. The housing assistance payment 
     contract between the owner and the public housing agency may 
     provide for penalties for the late payment of amounts due 
     under the contract, which shall be imposed on the public 
     housing agency in accordance with generally accepted 
     practices in the local housing market.
       ``(E) Penalties.--Unless otherwise authorized by the 
     Secretary, each public housing agency shall pay any penalties 
     from administrative fees collected by the public housing 
     agency.
       ``(12) Manufactured housing.--
       ``(A) In general.--A public housing agency may make 
     assistance payments in accordance with this subsection on 
     behalf of a family that utilizes a manufactured home as its 
     principal place of residence. Such payments may be made for 
     the rental of the real property on which the manufactured 
     home owned by any such family is located.
       ``(B) Rent calculation.--
       ``(i) Charges included.--For assistance pursuant to this 
     paragraph, the rent for the space on which a manufactured 
     home is located and with respect to which assistance payments 
     are to be made shall include maintenance and management 
     charges and tenant-paid utilities.
       ``(ii) Payment standard.--The public housing agency shall 
     establish a payment standard for the purpose of determining 
     the monthly assistance that may be paid for any family under 
     this paragraph. The payment standard may not exceed an amount 
     approved or established by the Secretary.
       ``(iii) Monthly assistance payment.--The monthly assistance 
     payment under this paragraph shall be determined in 
     accordance with paragraph (2).
       ``(13) Contract for assistance payments.--
       ``(A) In general.--If the Secretary enters into an annual 
     contributions contract under this subsection with a public 
     housing agency pursuant to which the public housing agency 
     will enter into a housing assistance payment contract with 
     respect to an existing structure under this subsection, the 
     housing assistance payment contract may not be attached to 
     the structure unless the owner agrees to rehabilitate or 
     newly construct the structure other than with assistance 
     under this Act, and otherwise complies with the requirements 
     of this section. The public housing agency may approve a 
     housing assistance payment contract for such structures for 
     not more than 15 percent of the funding available for tenant-
     based assistance administered by the public housing agency 
     under this section.
       ``(B) Extension of contract term.--In the case of a housing 
     assistance payment contract that applies to a structure under 
     this paragraph, a public housing agency shall enter into a 
     contract with the owner, contingent upon the future 
     availability of appropriated funds for the purpose of 
     renewing expiring contracts for assistance payments, as 
     provided in appropriations Acts, to extend the term of the 
     underlying housing assistance payment contract for such 
     period as the Secretary determines to be appropriate to 
     achieve long-term affordability of the housing. The contract 
     shall obligate the owner to have such extensions of the 
     underlying housing assistance payment contract accepted by 
     the owner and the owner's successors in interest.
       ``(C) Rent calculation.--For project-based assistance under 
     this paragraph, housing assistance payment contracts shall 
     establish rents and provide for rent adjustments in 
     accordance with subsection (c).
       ``(14) Inapplicability to tenant-based assistance.--
     Subsection (c) does not apply to tenant-based assistance 
     under this subsection.
       ``(15) Homeownership option.--A public housing agency 
     providing assistance under this subsection may, at the option 
     of the agency, provide assistance for homeownership under 
     subsection (y).''.

     SEC. 202. REPEAL OF FEDERAL PREFERENCES.

       (a) Section 8 Existing and Moderate Rehabilitation.--
     Section 8(d)(1)(A) of the United States Housing Act of 1937 
     (42 U.S.C. 1437f(d)(1)(A)) is amended to read as follows:
       ``(A) the selection of tenants shall be the function of the 
     owner, subject to the annual contributions contract between 
     the Secretary and the agency, except that with respect to the 
     certificate and moderate rehabilitation programs only, for 
     the purpose of selecting families to be assisted, the public 
     housing agency may establish, after public notice and an 
     opportunity for public comment, a written system of 
     preferences for selection that are not inconsistent with the 
     comprehensive housing affordability strategy under title I of 
     the Cranston-Gonzalez National Affordable Housing Act;''.
       (b) Section 8 New Construction and Substantial 
     Rehabilitation.--
       (1) Repeal.--Section 545(c) of the Cranston-Gonzalez 
     National Affordable Housing Act (42 U.S.C. 1437f note) is 
     amended to read as follows:
       ``(c) [Reserved.]''.
       (2) Prohibition.--Notwithstanding any other provision of 
     law, no Federal tenant selection preferences shall apply with 
     respect to--
       (A) housing constructed or substantially rehabilitated 
     pursuant to assistance provided under section 8(b)(2) of the 
     United States Housing Act of 1937 (as such section existed on 
     the day before October 1, 1983); or
       (B) projects financed under section 202 of the Housing Act 
     of 1959 (as such section existed on the day before the date 
     of enactment of the Cranston-Gonzalez National Affordable 
     Housing Act).
       (c) Rent Supplements.--Section 101(k) of the Housing and 
     Urban Development Act of 1965 (12 U.S.C. 1701s(k)) is amended 
     to read as follows:
       ``(k) [Reserved.]''.
       (d) Conforming Amendments.--
       (1) United states housing act of 1937.--The United States 
     Housing Act of 1937 (42 U.S.C. 1437 et seq.) is amended--
       (A) in section 6(o), by striking ``preference rules 
     specified in'' and inserting ``written selection criteria 
     established pursuant to'';
       (B) in section 7(a)(2), by striking ``according to the 
     preferences for occupancy under'' and inserting ``in 
     accordance with the written selection criteria established 
     pursuant to'';
       (C) in section 7(a)(3), by striking ``who qualify for 
     preferences for occupancy under'' and inserting ``who meet 
     the written selection criteria established pursuant to'';
       (D) in section 8(d)(2)(A), by striking the last sentence;
       (E) in section 8(d)(2)(H), by striking ``notwithstanding 
     subsection (d)(1)(A)(i), an'' and inserting ``An'';
       (F) in section 16(c), in the second sentence, by striking 
     ``the system of preferences established by the agency 
     pursuant to section 6(c)(4)(A)(ii)'' and inserting ``the 
     written selection criteria established by the public housing 
     agency pursuant to section 6(c)(4)(A)''; and
       (G) in section 24(e)--
       (i) by striking ``(e) Exceptions.--'' and all that follows 
     through ``The Secretary may'' and inserting the following:
       ``(e) Exception to General Program Requirements.--The 
     Secretary may''; and
       (ii) by striking paragraph (2).
       (2) Cranston-gonzalez national affordable housing act.--The 
     Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
     12704 et seq.) is amended--
       (A) in section 455(a)(2)(D)(iii), by striking ``would 
     qualify for a preference under'' and inserting ``meet the 
     written selection criteria established pursuant to'';
       (B) in section 522(f)(6)(B), by striking ``any preferences 
     for such assistance under section 8(d)(1)(A)(i)'' and 
     inserting ``the written selection criteria established 
     pursuant to section 8(d)(1)(A)''; and
       (3) Low-income housing preservation and resident 
     homeownership act of 1990.--The second sentence of section 
     226(b)(6)(B) of the Low-Income Housing Preservation and 
     Resident Homeownership Act of 1990 (12 U.S.C. 4116(b)(6)(B)) 
     is amended by striking ``requirement for giving preferences 
     to certain categories of eligible families under'' and 
     inserting ``written selection criteria established pursuant 
     to''.
       (4) Housing and community development act of 1992.--Section 
     655 of the Housing and Community Development Act of 1992 (42 
     U.S.C. 13615) is amended by striking ``preferences for 
     occupancy'' and all that follows before the period at the end 
     and inserting ``selection criteria established by the owner 
     to elderly families according to such written selection 
     criteria, and to near-elderly families according to such 
     written selection criteria, respectively''.
       (5) References in other law.--Any reference in any Federal 
     law other than any provision of any law amended by paragraphs 
     (1) through (5) of this subsection or section 201 to the 
     preferences for assistance under section 6(c)(4)(A)(i), 
     8(d)(1)(A)(i), or 8(o)(3)(B) of the United States Housing Act 
     of 1937 (as such sections existed on the day before the date 
     of enactment of this Act) shall be considered to refer to the 
     written selection criteria established pursuant to section 
     6(c)(4)(A), 8(d)(1)(A), or 8(o)(6)(A), respectively, of the 
     United States Housing Act of 1937, as amended by this 
     subsection and section 201 of this Act.

     SEC. 203. PORTABILITY.

       Section 8(r) of the United States Housing Act of 1937 (42 
     U.S.C. 1437f(r)) is amended--
       (1) in paragraph (1), by striking ``assisted under 
     subsection (b) or (o)'' and inserting ``receiving tenant-
     based assistance under subsection (o)'';
       (2) in paragraph (3)--
       (A) by striking ``(b) or''; and
       (B) by adding at the end the following new sentence: ``The 
     Secretary may reserve amounts available for assistance under 
     subsection (o) to compensate public housing 

[[Page S13855]]
     agencies that issue vouchers to families that move into the 
     jurisdiction of the public housing agency under portability 
     procedures.''; and
       (3) by adding at the end the following new paragraph:
       ``(5) Lease violations.--A family may not receive a voucher 
     from a public housing agency and move to another jurisdiction 
     under the tenant-based assistance program if the family has 
     moved out of the assisted dwelling unit of the family in 
     violation of a lease.''.

     SEC. 204. LEASING TO VOUCHER HOLDERS.

       Section 8(t) of the United States Housing Act of 1937 (42 
     U.S.C. 1437f(t)) is amended to read as follows:
       ``(t) [Reserved.]''.

     SEC. 205. HOMEOWNERSHIP OPTION.

       Section 8(y) of the United States Housing Act of 1937 (42 
     U.S.C. 1437f(y)) is amended--
       (1) in paragraph (1)(A), by inserting before the semicolon 
     ``, or owns or is acquiring shares in a cooperative'';
       (2) in paragraph (1)(B)(i), by inserting before the 
     semicolon ``and demonstrates to the public housing agency 
     that it has sufficient resources for homeownership'';
       (3) by amending paragraph (2) to read as follows:
       ``(2) Determination of amount of assistance.--
       ``(A) Monthly expenses do not exceed payment standard.--If 
     the monthly homeownership expenses, as determined in 
     accordance with requirements established by the Secretary, do 
     not exceed the payment standard, the monthly assistance 
     payment shall be the amount by which the homeownership 
     expenses exceed the highest of the following amounts, rounded 
     to the nearest dollar:
       ``(i) Thirty percent of the monthly adjusted income of the 
     family.
       ``(ii) Ten percent of the monthly income of the family.
       ``(iii) If the family is receiving payments for welfare 
     assistance from a public agency and a part of such payments, 
     adjusted in accordance with the actual housing costs of the 
     family, is specifically designated by such agency to meet the 
     housing costs of the family, the portion of such payments 
     that is so designated.
       ``(B) Monthly expenses exceed payment standard.--If the 
     monthly homeownership expenses, as determined in accordance 
     with requirements established by the Secretary, exceed the 
     payment standard, the monthly assistance payment shall be the 
     amount by which the applicable payment standard exceeds the 
     highest of the following amounts, rounded to the nearest 
     dollar:
       ``(i) Thirty percent of the monthly adjusted income of the 
     family.
       ``(ii) Ten percent of the monthly income of the family.
       ``(iii) If the family is receiving payments for welfare 
     assistance from a public agency and a part of such payments, 
     adjusted in accordance with the actual housing costs of the 
     family, is specifically designated by such agency to meet the 
     housing costs of the family, the portion of such payments 
     that is so designated.'';
       (4) by striking paragraphs (3) and (4); and
       (5) by redesignating paragraphs (5) through (8) as 
     paragraphs (3) through (6), respectively.

     SEC. 206. TECHNICAL AND CONFORMING AMENDMENTS.

       (a) Contract Provisions and Requirements.--Section 
     6(p)(1)(B) of the United States Housing Act of 1937 (42 
     U.S.C. 1437d(p)(1)(B)) is amended by striking ``holding 
     certificates and vouchers'' and inserting ``receiving tenant-
     based assistance''.
       (b) Lower Income Housing Assistance.--Section 8 of the 
     United States Housing Act of 1937 (42 U.S.C. 1437f) is 
     amended--
       (1) in subsection (a), by striking the second and third 
     sentences;
       (2) in subsection (b)--
       (A) in the section heading, by striking ``Rental 
     Certificates and''; and
       (B) in the first undesignated paragraph--
       (i) by striking ``The Secretary'' and inserting the 
     following:
       ``(1) In general.--The Secretary''; and
       (ii) by striking the second sentence;
       (3) in subsection (c)--
       (A) in paragraph (3)--
       (i) by striking ``(A)''; and
       (ii) by striking subparagraph (B);
       (B) in the first sentence of paragraph (4), by striking 
     ``or by a family that qualifies to receive'' and all that 
     follows through ``1990'';
       (C) by striking paragraph (5) and redesignating paragraph 
     (6) as paragraph (5);
       (D) by striking paragraph (7) and redesignating paragraphs 
     (8) through (10) as paragraphs (6) through (8), respectively;
       (E) in paragraph (6), as redesignated, by inserting 
     ``(other than a contract under section 8(o))'' after 
     ``section'';
       (F) in paragraph (7), as redesignated, by striking ``(but 
     not less than 90 days in the case of housing certificates or 
     vouchers under subsection (b) or (o))'' and inserting ``, 
     other than a contract for tenant-based assistance under this 
     section''; and
       (G) in paragraph (8), as redesignated, by striking 
     ``Secretary'' and inserting ``contract administrator'';
       (4) in subsection (d)--
       (A) in paragraph (1)(B)(iii), by striking ``on or near such 
     premises''; and
       (B) in paragraph (2)--
       (i) in subparagraph (A), by striking the third sentence and 
     all that follows through the end of the subparagraph; and
       (ii) by striking subparagraph (B) and inserting the 
     following:
       ``(B) [Reserved.]'';
       (5) in subsection (f)--
       (A) in paragraph (6), by striking ``(d)(2)'' and inserting 
     ``(o)(11)''; and
       (B) in paragraph (7)--
       (i) by striking ``(b) or''; and
       (ii) by inserting before the period the following: ``and 
     that provides for the eligible family to select suitable 
     housing and to move to other suitable housing'';
       (6) by striking subsection (j) and inserting the following:
       ``(j) [Reserved.]'';
       (7) by striking subsection (n) and inserting the following:
       ``(n) [Reserved.]'';
       (8) in subsection (q)--
       (A) in the first sentence of paragraph (1), by striking 
     ``and housing voucher programs under subsections (b) and 
     (o)'' and inserting ``program under this section'';
       (B) in paragraph (2)(A)(i), by striking ``and housing 
     voucher programs under subsections (b) and (o)'' and 
     inserting ``program under this section''; and
       (C) in paragraph (2)(B), by striking ``and housing voucher 
     programs under subsections (b) and (o)'' and inserting 
     ``program under this section'';
       (9) in subsection (u), by striking ``certificates or'' each 
     place such term appears; and
       (10) in subsection (x)(2), by striking ``housing 
     certificate assistance'' and inserting ``tenant-based 
     assistance''.
       (c) Rental rehabilitation and development grants.--Section 
     17(d)(6)(B) of the United States Housing Act of 1937 (42 
     U.S.C. 1437o(d)(6)(B)) is amended by striking ``holding 
     certificates under'' and inserting ``receiving tenant-based 
     assistance''.
       (d) Public Housing Homeownership and Management 
     Opportunities.--Section 21(b)(3) of the United States Housing 
     Act of 1937 (42 U.S.C. 1437f(b)) is amended--
       (1) in the first sentence, by striking ``(at the option of 
     the family) a certificate under section 8(b)(1) or a housing 
     voucher under section 8(o)'' and inserting ``tenant-based 
     assistance under section 8''; and
       (2) by striking the second sentence.
       (e) Documentation of Excessive Rent Burdens.--Section 
     550(b) of the Cranston-Gonzalez National Affordable Housing 
     Act (42 U.S.C. 1437f note) is amended--
       (1) in paragraph (1), by striking ``assisted under the 
     certificate and voucher programs established'' and inserting 
     ``receiving tenant-based assistance'';
       (2) in the first sentence of paragraph (2)--
       (A) by striking ``, for each of the certificate program and 
     the voucher program'' and inserting ``for the tenant-based 
     assistance under section 8''; and
       (B) by striking ``participating in the program'' and 
     inserting ``receiving tenant-based assistance''; and
       (3) in paragraph (3), by striking ``assistance under the 
     certificate or voucher program'' and inserting ``tenant-based 
     assistance under section 8 of the United States Housing Act 
     of 1937''.
       (f) Grants for Community Residences and Services.--Section 
     861(b)(1)(D) of the Cranston-Gonzalez National Affordable 
     Housing Act (42 U.S.C. 12910(b)(1)(D)) is amended by striking 
     ``certificates or vouchers'' and inserting ``assistance''.
       (g) Section 8 Certificates and Vouchers.--Section 931 of 
     the Cranston-Gonzalez National Affordable Housing Act (42 
     U.S.C. 1437c note) is amended by striking ``assistance under 
     the certificate and voucher programs under sections 8(b) and 
     (o) of such Act'' and inserting ``tenant-based assistance 
     under section 8 of the United States Housing Act of 1937''.
       (h) Assistance for Displaced Tenants.--Section 223(a) of 
     the Housing and Community Development Act of 1987 (12 U.S.C. 
     4113(a)) is amended by striking ``assistance under the 
     certificate and voucher programs under sections 8(b) and 
     8(o)'' and inserting ``tenant-based assistance under section 
     8''.
       (i) Rural Housing Preservation Grants.--Section 533(a) of 
     the Housing Act of 1949 (42 U.S.C. 1490m(a)) is amended in 
     the second sentence by striking ``assistance payments as 
     provided by section 8(o)'' and inserting ``tenant-based 
     assistance as provided under section 8''.
       (j) Repeal of Moving To Opportunities For Fair Housing 
     Demonstration.--Section 152 of the Housing and Community 
     Development Act of 1992 (42 U.S.C. 1437f note) is repealed.
       (k) Preferences for Elderly Families and Persons.--Section 
     655 of the Housing and Community Development Act of 1992 (42 
     U.S.C. 13615) is amended by striking ``the first sentence of 
     section 8(o)(3)(B)'' and inserting ``section 8(o)(6)(A)''.
       (l) Assistance For Troubled Multifamily Housing Projects.--
     Section 201(m)(2)(A) of the Housing and Community Development 
     Amendments of 1978 (12 U.S.C. 1715z-1a(m)(2)(A)) is amended 
     by striking ``section 8(b)(1)'' and inserting ``section 8''.
       (m) Management and Disposition of Multifamily Housing 
     Projects.--Section 203(g)(2) of the Housing and Community 
     Development Amendments of 1978 (12 U.S.C. 1701z-11(g)(2)), as 
     amended by section 101(b) of the Multifamily Housing Property 
     Disposition Reform Act of 1994, is amended by striking 
     ``8(o)(3)(B)'' and inserting ``8(o)(6)(A)''.

     SEC. 207. IMPLEMENTATION.

       In accordance with the negotiated rulemaking procedures set 
     forth in subchapter 

[[Page S13856]]
     III of chapter 5 of title 5, United States Code, the Secretary shall 
     issue such regulations as may be necessary to implement the 
     amendments made by this title after notice and opportunity 
     for public comment.

     SEC. 208. EFFECTIVE DATE.

       (a) In General.--The amendments made by this title shall 
     become effective not later than 1 year after the date of 
     enactment of this Act.
       (b) Conversion Assistance.--
       (1) In general.--The Secretary may provide for the 
     conversion of assistance under the certificate and voucher 
     programs under subsections (b) and (o) of section 8 of the 
     United States Housing Act of 1937, as such sections existed 
     before the effective date of the amendments made by this 
     title, to the voucher program established by the amendments 
     made by this title.
       (2) Continued applicability.--The Secretary may apply the 
     provisions of the United States Housing Act of 1937, or any 
     other provision of law amended by this title, as such 
     provisions existed on the day before the effective date of 
     the amendments made by this title, to assistance obligated by 
     the Secretary before such effective date for the certificate 
     or voucher program under section 8 of the United States 
     Housing Act of 1937, if the Secretary determines that such 
     action is necessary for simplification of program 
     administration, avoidance of hardship, or other good cause.
                  TITLE III--MISCELLANEOUS PROVISIONS

     SEC. 301. PUBLIC HOUSING FLEXIBILITY IN THE CHAS.

       Section 105(b) of the Cranston-Gonzalez National Affordable 
     Housing Act (42 U.S.C. 12705(b)) is amended--
       (1) by redesignating the second paragraph designated as 
     paragraph (17) (as added by section 681(2) of the Housing and 
     Community Development Act of 1992) as paragraph (20);
       (2) by redesignating paragraph (17) (as added by section 
     220(b)(3) of the Housing and Community Development Act of 
     1992) as paragraph (19);
       (3) by redesignating the second paragraph designated as 
     paragraph (16) (as added by section 220(c)(1) of the Housing 
     and Community Development Act of 1992) as paragraph (18);
       (4) in paragraph (16)--
       (A) by striking the period at the end; and
       (B) by striking ``(16)'' and inserting ``(17)'';
       (5) by redesignating paragraphs (11) through (15) as 
     paragraphs (12) through (16), respectively; and-
       (6) by inserting after paragraph (10) the following new 
     paragraph:
       ``(11) describe how the jurisdiction's plan will help 
     address the needs of public housing and coordinate with the 
     local public housing agency plan under section 5A of the 
     United States Housing Act of 1937;''.

     SEC. 302. PUBLIC HOUSING FLEXIBILITY IN THE HOME PROGRAM.

       Section 212(d) of the Cranston-Gonzalez National Affordable 
     Housing Act (42 U.S.C. 12742) is amended--
       (1) in paragraph (3), by adding ``or'' at the end;
       (2) by striking paragraphs (4) and (5); and
       (3) by redesignating paragraph (6) as paragraph (4).

     SEC. 303. REPEAL OF CERTAIN PROVISIONS.

       (a) Maximum Annual Limitation on Rent Increases Resulting 
     From Employment.--
       (1) Repeal.--Section 957 of the Cranston-Gonzalez National 
     Affordable Housing Act (42 U.S.C. 12714) is repealed.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall be deemed to have the same effective date as section 
     957 of the Cranston-Gonzalez National Affordable Housing Act.
       (b) Economic Independence.--
       (1) Repeal.--Section 923 of the Housing and Community 
     Development Act of 1992 (42 U.S.C. 12714 note) is repealed.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall be deemed to have the same effective date as section 
     923 of the Housing and Community Development Act of 1992.

     SEC. 304. DETERMINATION OF INCOME LIMITS.

       (a) In General.--Section 3(b)(2) of the United States 
     Housing Act of 1937 (42 U.S.C. 1437a(b)(2)) is amended--
       (1) in the fourth sentence--
       (A) by striking ``County'' and inserting ``and Rockland 
     Counties''; and
       (B) by inserting ``each'' before ``such county''; and
       (2) in the fifth sentence, by striking ``County'' each 
     place such term appears and inserting ``and Rockland 
     Counties''.
       (b) Regulations.--Not later than the expiration of the 90-
     day period beginning on the date of the enactment of this 
     Act, the Secretary shall issue regulations implementing the 
     amendments made by subsection (a).
                                                                    ____


  Public Housing Reform and Resident Empowerment Act--Summary of Key 
                               Provisions


                                findings

       Recognizes the Federal government's limited capacity and 
     expertise to manage and oversee 3,400 public housing agencies 
     nationwide. Acknowledges the concentration of the very poor 
     in very poor neighborhoods, disincentives for economic self-
     sufficiency, and lack of resident choice have been the 
     unintended consequences resulting from Federal 
     micromanagement of housing programs in the past.


                                purpose

       To reform the public housing system by consolidating 
     programs, streamlining program requirements, and providing 
     maximum flexibility and discretion to public housing 
     authorities (PHAs) who perform well with strict 
     accountability to residents and localities, and to address 
     the problems of housing authorities with severe management 
     deficiencies.


                            basic provisions

       Program consolidation.--Consolidates public housing 
     programs into two flexible block grants--one for operating 
     expenses and one for capital needs. Requires HUD to establish 
     new formulas through negotiated rulemaking.
       Elimination of obsolete regulations.--Eliminates all 
     current HUD rules, regulations, handbooks, and notices 
     pertaining to the 1937 Housing Act one year after enactment; 
     requires HUD to propose new regulations necessary to carry 
     out revised Act within 6 months.
       Public housing agency plan [PHAP].--As a condition for 
     funding, requires each PHA to submit annually a written 
     agency plan to HUD, developed with an advisory board made up 
     of residents and members of the community. The plan is 
     intended to serve as an operating, management and planning 
     tool for PHAs. The plan would include: a description of the 
     PHA's uses for operating and capital funds; a description of 
     the PHA's management policies; procedures relating to 
     eligibility, selection, and admission; and policies involving 
     marketing, rents, security, and tenant empowerment 
     activities.
       Vouchering out of public housing.--Allows PHAs to convert 
     any public housing development to a tenant-based or 
     ``voucher'' system, but requires the vouchering out of all 
     severely distressed public housing. Requires each PHA to 
     assess all public housing for the purpose of vouchering out 
     by performing a cost and market analysis and an impact 
     analysis on the affected community.
       Choice and opportunity for residents.--Provides families 
     with vouchers and the freedom to move out of housing projects 
     that are in deplorable, unlivable condition. Involves 
     residents in the process of developing a PHA plan that is 
     responsive to their needs. Provides funds for resident 
     organizations to develop resident management and empowerment 
     activities.
       Federal preferences.--Repeals Federal preferences and 
     allows PHAs to operate according to locally established 
     preferences consistent with local housing needs.
       Income targeting and eligibility.--Allows PHAs to serve 
     families with incomes up to 80 percent of median income, 
     except that at least 40 percent of the units must be reserved 
     for families whose income does not exceed 30 percent of the 
     area median.
       Rent flexibility.--Allows high performing PHAs to establish 
     rents with protections for very low income families (families 
     with incomes below 30 percent of the area median would not 
     have to pay more than 30 percent of their income for rent, 
     except that a PHA could charge a minimum rent up to $30 per 
     month). Encourages PHAs to develop rental policies that 
     encourage and reward employment and upward mobility.
       Ceiling rents.--Allows PHAs to set ceiling rents that 
     reflect the reasonable rental value of units in order to 
     remove the disincentive for residents to work or seek higher 
     paying jobs where rents are based on a percentage of income.
       Minimum rents.--Allows PHAs to set a minimum rent for both 
     Section 8 and public housing units, not to exceed $30 per 
     month.
       Income adjustments.--Allows a PHA to disregard certain 
     income in calculating rents to take away the disincentive for 
     tenants to work and earn higher incomes.
       Troubled PHAs.--Requires HUD to take over or appoint a 
     receiver for PHAs that are in substantial default within one 
     year of enactment. Expands HUD's powers for dealing with 
     troubled PHAs by allowing it to break up troubled agencies 
     into one or more agencies, abrogate contracts that impede 
     correction of the agency's default, and demolish and dispose 
     of a PHA's assets.
       Demolition and disposition.--Repeals the one-for-one 
     replacement requirement and streamlines the demolition and 
     disposition process to permit PHAs to dispose of vacant or 
     obsolete housing.
       Criminal activity.--Strengthens the ability of PHAs to 
     evict residents for drug-related criminal activity; denies 
     housing assistance to residents evicted for drug-related 
     activities for up to three years; and provides PHAs with 
     greater access to the criminal conviction records of adult 
     applicants and residents.
       Consortia and joint ventures.--Allows PHAs to form a 
     consortium with other PHAs, form and operate wholly-owned or 
     controlled subsidiaries, or enter into joint ventures, 
     partnerships or other business arrangements to administer 
     housing programs.
       Designated housing for the elderly and disabled.--Permits 
     PHAs to separate elderly and disabled persons by designating 
     specific projects or parts of projects for a particular 
     population only.
       Work requirements.--Requires residents to perform 8 hours 
     of community work per month with the exception for the 
     elderly, disabled and those working full time.
       Section 8 tenant based assistance.--Merges the voucher and 
     certificate program into a single voucher program that 
     emphasizes lease requirements similar to the market place. 
     Repeals requirements that are administratively burdensome to 
     landlords, such as ``take one take all,'' endless lease, 
     federal 

[[Page S13857]]
     preferences, and ninety-day termination notice requirements.

  Mr. D'AMATO. Mr. President, I rise to cosponsor the Public Housing 
Reform and Empowerment Act of 1995. I wish to salute Senators Connie 
Mack and Kit Bond for their successful leadership in the development of 
this legislation. Without their guidance and direction, there would not 
be a public housing reform bill before you today. Both Senators are to 
be commended for their strong commitment to improving housing 
conditions in America.
  Mr. President, ``The Public Housing Reform and Empowerment Act of 
1995'' is an important first step in the lengthy process of addressing 
the housing concerns of our nation. It represents a significant 
starting point in the passage of long overdue reforms of the Department 
of Housing and Urban Development [HUD]. Given limited Federal resources 
and the need to balance the budget within 7 years, Congress must find 
more cost-effective ways to provide affordable housing. This bill 
represents a concrete step in the fulfillment of Congress' 
responsibility to the American taxpayer to ensure that every Federal 
dollar is maximized to its greatest potential.
  Substantial input from HUD, public housing authorities, tenant 
associations and other interested parties has been received and 
incorporated into this legislation. However, I look forward to 
additional examination of this bill and further improvement of its 
provisions.
  Mr. President, the Honorable Senator from Florida has outlined the 
provisions of the bill in great detail. I would like to comment on 
several guiding principles of the legislation. First, it would reform 
the public housing system through the devolution of control from the 
Federal Government to the public housing authorities and their tenants. 
It would consolidate programs, streamline program requirements and 
provide greatly increased flexibility to public housing authorities.
  The bill also provides incentives to facilitate the transition from 
welfare to work and empower public housing tenants. This will allow our 
nation's public housing residents a greater opportunity to achieve 
economic independence. Furthermore, the bill would streamline the 
demolition and disposition process of distressed housing projects 
through the repeal of the one-for-one replacement requirement and other 
measures.

  The bill recognizes that public housing is most effective when there 
is a viable income mix among its residents. Federal preferences would 
be repealed. High performance public housing authorities would be 
allowed to establish rents with protections provided for very low-
income families. The ``Brooke Amendment,'' which does not allow a rent 
greater than 30 percent of tenant income, would be waived in some 
instances. I will continue to closely analyze the impact, both 
immediate and future, which such a waiver would have on the tenants 
whom we are committed to serving. Also, special protections should be 
considered for elderly and disabled individuals living on fixed 
incomes.
  The safety and security of the residents of public and assisted 
housing is a paramount objective. To that end, the bill would allow 
public housing authorities increased access to criminal conviction 
records and permit greater flexibility in the eviction of drug 
criminals. Public housing authorities depend on drug elimination 
funding to provide police to safeguard law-abiding tenants. I will 
continue to closely examine the practical effects of the bill's 
provision which would fold the drug elimination grant program into a 
block grant.
  ``The Public Housing Reform and Empowerment Act'' officially embarks 
us on the reinvention of the Department of Housing and Urban 
Development and the redirection of our Nation's housing policy. I would 
like to personally congratulate Senator Mack for his initiative and 
steadfastness in producing a public housing reform bill which is 
thoughtful and well-balanced. As chairman of the Banking Subcommittee 
on Housing Opportunity and Community Development, he faces the strong 
challenge of reforming the Department of Housing and Urban Development. 
I strongly support the Senator's deliberate and measured approach to 
addressing the complex and difficult housing issues before us.
  HUD is at a crossroads. HUD's fiscal crisis, poor management, and 
lack of capacity have placed the Department in a situation in which it 
can no longer continue with business as usual. HUD is expected to do 
too much and has too many varied and competing constituencies. We must 
determine which current functions should be transferred to other 
Federal agencies or other levels of government and which programs, if 
any, should be preserved within HUD.
  The Banking Committee and its Housing Subcommittees will continue to 
evaluate proposals for HUD reorganization and elimination. Congress 
will seek to thoroughly address a myriad of housing issues.
  I would like to acknowledge Senator Lauch Faircloth, chairman of the 
Banking Subcommittee on HUD Oversight and Structure, for his diligence 
in his oversight role of the Department of Housing and Urban 
Development. His forthright views on the future of HUD effectively 
serve to widen the debate on the Department's potential for reform.
  Additional legislative initiatives to reform HUD will be offered. 
However, reforms must be made with caution and careful consideration of 
budgetary and social impacts. Congress must assess fully the potential 
ramifications of statutory change on State and local governments and 
entities, the capital and bond markets, property owners and managers, 
local communities, and program recipients.
  We must remember that the fundamental goal of this process is to 
address adequately the affordable housing and community development 
needs of our citizens in a time of dwindling Federal resources. It is 
imperative that we protect our needy poor and working class residents 
whom these programs are intended to serve. I believe this bill balances 
the social purpose of public and assisted housing programs while also 
responding to Federal fiscal constraints.
  I look forward to working with all Members of the Banking Committee 
on a bipartisan basis to ensure the swift passage of this important 
housing initiative.
  Mr. BOND. Mr. President, today, Senator Mack, Senator D'Amato, and I 
are introducing a housing reauthorization bill, the Public Housing 
Reform and Empowerment Act of 1995.
  Over the last several months, I have worked with my colleagues on the 
appropriating committee where I serve as chairman of the VA/HUD 
Appropriations Subcommittee, and my fellow members of the housing 
authorizing committee to do something about the train wreck that has 
occurred in public housing. Within this context, this public housing 
reform bill dovetails with many of the public housing reforms contained 
in the VA/HUD FY 1996 appropriations bill and reflects the need to 
provide streamlined programs and local responsibility as the most 
appropriate method to address local housing needs. This bill also 
represents a complete overhaul of the public housing system and a move 
away from HUD's ``one size fits all'' mentality.
  As I discussed on this floor this summer, when the rescissions bill 
was before us, HUD not only is a dysfunctional agency but it has made 
far too many commitments to be able to live up to those commitments. 
HUD has undertaken advance commitments for new housing beyond its 
ability and capacity particularly under these budget constraints to 
fund.
  We have in the rescissions bill taken over $6 billion out of the 
current year's budget authority for Department of Housing and Urban 
Development. In the coming fiscal year, our subcommittee has over $9 
billion less for budget authority than we do in the current year. As a 
result, the budgetary pressures are forcing us to reevaluate all HUD 
housing and community development programs, including the public 
housing programs. It is not only the budget pressures, Mr. President; 
it is the total lack of foresight in planning in HUD that has led us to 
the situation where reforms are vitally needed.
  Any of us who go back to our States and talk with people who are in 
housing, who are concerned about providing housing for those in need, 
know that reforms are needed. The housing reauthorization bill that I 
am introducing with my colleagues on the Banking 

[[Page S13858]]
Committee today goes a long way towards making the changes in law that 
will enable public housing authorities in local jurisdictions to make 
the decisions that are so vitally important to assure that we continue 
to supply housing to those who are counting on it.
  In public housing, frankly, we are going to move to two flexible 
block grants, one for operating funds, one for capital grants. I 
emphasize flexibility; for example, the operating funds should be used 
by well performing public housing authority as that housing authority 
wants and needs. Too many times in too many areas we have seen HUD 
trying to second-guess the decisions made by those who are on-site 
directly responsible to the residents or tenants they serve, and the 
decisions have been delayed or denied. There has been an inordinate 
amount of red tape and delay, hamstringing the ability of public 
housing authorities to move forward.
  This block grant system would allow PHAs to make the decisions on 
operating funds. PHAs also would have a separate fund for capital 
grants. This would enable them to decide how to modernize or 
rehabilitate public housing or, in many instances, demolish unusable 
and obsolete public housing.
  We also tell housing authorities that if they have uninhabitable 
housing units that are not good places to raise families, that are 
unsafe, unclean, crime and drug havens, then they ought to tear them 
down and move those families out. This to me is a very important step 
for us to clean up our communities and provide decent housing for the 
people who depend upon publicly assisted housing.
  We think there are tremendous savings and tremendously improved 
services that will come about from getting HUD out of the business of 
micromanaging public housing at the local level.
  Now, we believe that good performing public housing authorities ought 
to be freed of the day-to-day regulation by HUD. We would require that 
all public housing authorities submit a public housing agency plan to 
HUD that tells how they are going to serve their tenants. They would 
have an advisory committee made up of 60 percent of the tenants or 
residents who would work with them on the plan, but the housing 
authority would have the final authority.
  That plan would be submitted to the HUD Secretary, and the Secretary 
would have 45 days to disapprove it. If it were not disapproved, it 
would be in effect. The only reasons the Secretary could disapprove a 
plan is if it is incomplete, does not comply with law, or HUD has other 
information that the housing authority is not living up to the 
commitments made in its previous plans. So there would be some minimal 
oversight for good performing public housing.
  We also make it clear that where public housing authorities are not 
doing their job, HUD can then step in and provide more extensive 
oversight, and if they are totally failed public housing authorities, 
HUD would be empowered to take over the authorities, be able to 
petition for a receiver and take over the management, turn it over to a 
competent manager, either private sector, not-for-profit or for-profit 
manager to make sure that the people who are in public housing are well 
served.
  I have seen too many instances, as I have visited public housing 
authorities around this country, where they are not being well served; 
the residents are not being well served because too much time, effort 
and energy is being spent on complying with rules, requirements, and 
directives that HUD bureaucrats have laid down that make no sense and 
do not serve local needs.
  In addition to the basic structure, we get rid of permanently the 
one-for-one hard unit replacement rule on public housing. That has 
prevented many, many housing authorities and communities from tearing 
down outmoded, obsolete and unsafe public housing units. Even though 
there may only be 25 percent occupancy, the rules that HUD has 
previously operated under say if you tear down a dilapidated, unsafe 
housing project, which is only 25 percent occupied, you have to replace 
it with 100 percent of the units. This removes the ability to make 
common sense decisions on the demolition and disposition of public 
housing. The Secretary of HUD has agreed with us, that the one-for-one 
replacement rule needs to go. That is essential for our communities.
  This legislation would still continue to protect the poorest of the 
poor by requiring public housing authorities to continue to make 40 
percent of all units available to families whose incomes do not exceed 
30 percent of the area median income, and to make all other units 
available to families with incomes no greater than 80 percent of 
median.
  This bill also addresses the problem of mixed populations in public 
housing where we house both the elderly and the young disabled, 
including drug abusers, alcoholics, and people with mental 
disabilities. This has been a significant housing problem and this 
housing legislation would provide local flexibility to designate 
elderly-only housing and disabled-only housing, subject to strong 
tenant protections. The existing, burdensome HUD requirements have 
proven to be unacceptable and unworkable.
  Finally this bill reforms and consolidates the section 8 voucher and 
certificate programs into a single voucher program which is designed to 
reduce administrative burden and increase the acceptability of vouchers 
in the private housing market.
  I think of this bill as part of a downpayment on a larger HUD reform 
which I expect will be pursued through appropriations and the Banking 
Committee. I reemphasize that the job is not simple; as chairman of the 
VA/HUD Appropriations Subcommittee and as a member of the Housing 
Opportunities Subcommittee of the Senate Banking Committee, I can 
personally attest to the many complexities of HUD programs and the need 
to redirect federal housing and community development policy from 
federal micromanagement to state and local decisionmaking.
  HUD has become the poster child for bad government. Nevertheless, I 
am not recommending that we dismantle HUD, but I do suggest that we 
devolve many of HUD's responsibilities to states and localities or 
other entities better able to handle them.
  Mr. President, I see that my time has expired. I ask unanimous 
consent that a letter in support of this measure prepared by the 
Missouri National Association of Housing Officers be printed in the 
Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

         Missouri Chapter, National Association of Housing and 
           Redevelopment Officials,
                           Jefferson City, MO, September 15, 1995.
     Hon. Christopher S. Bond,
     U.S. Senate,
     Washington, DC.
       Dear Senator Bond: The members of the Missouri Chapter of 
     the National Association of Housing and Redevelopment 
     Officials (NAHRO), representing 250 members of public housing 
     organizations across the state today voted to endorse the 
     draft Bond-Mack Public Housing Reform and Empowerment Act of 
     1995.
       There is a need for safe, affordable housing in every 
     community. Yet public housing authorities cannot hope to meet 
     the needs of their communities in a new era of spending 
     limitations without the flexibility to design and administer 
     housing programs for their own set of challenges. Further, 
     de-emphasizing the Housing and Urban Development Department's 
     reams of regulations in favor of better accountability 
     assessment and incentives is an idea which is long overdue.
       The Bond-Mack legislation offers a reasonable step toward 
     continuing a federal housing policy with consistent 
     eligibility guidelines and rent floors, yet allowing the 
     establishment of local priorities by providing broad 
     flexibility for demolishing and disposing of obsolete public 
     housing and simplifying the procedures for designating 
     elderly and disabled public housing.
       Especially important in this difficult budget time is the 
     Bond-Mack bill's elimination of the numerous, restrictive 
     funding categories administered by HUD in favor of a flexible 
     Operating Fund and Capital Fund with part of the Capital Fund 
     available for use for Operating Fund projects. The bill also 
     consolidates the Section 8 voucher and certificate programs 
     into a single voucher program, which translates into improved 
     administrative efficiencies.
       Public housing authorities welcome the opportunity to show 
     that we can improve housing and streamline bureaucratic 
     regulations if given the opportunity. The Bond-Mack bill 
     recognizes that only by replacing restrictive federal 
     regulations with local flexibility can public housing meet 
     the needs of its communities in tough budget times, and we 
     appreciate having had the opportunity to work 

[[Page S13859]]
     with you and your staff during the drafting of the bill. Missouri NAHRO 
     looks forward to continuing to work closely with you as the 
     legislation continues to develop and move toward final 
     passage.
           Sincerely,
                                                Allen Pollock, PE,
                                              President, MO NAHRO.
                                 ______

      By Mr. MOYNIHAN:
  S. 1261. A bill to amend the Internal Revenue Code of 1986 to prevent 
the avoidance of tax through the use of foreign trusts; to the 
Committee on Finance.


             the use of foreign trusts to avoid u.s. taxes

  Mr. MOYNIHAN. Mr. President, I rise today to introduce legislation 
designed to stem the use of foreign trusts for the avoidance of U.S. 
taxes. The administration's fiscal year 1996 budget, which contained a 
series of proposals for change in the taxation of income from foreign 
trusts, called attention to this problem earlier this year. Since then, 
I have been committed to developing practical rules to dramatically 
improve tax compliance when foreign trusts are used, without unduly 
burdening legitimate financial transactions. The bill I introduce today 
represents a serious attempt to achieve that balance.
  It is difficult to estimate precisely the magnitude of tax avoidance 
occurring through the use of foreign trusts. But we have some 
disturbing evidence. Under current law, U.S. taxpayers are required to 
report the assets held in foreign trusts that they have established. 
But the IRS reports that only $1.5 billion of foreign trust assets were 
reported in 1993. The estimates of total U.S. source funds held abroad 
in tax haven jurisdictions are staggering by comparison, in the 
hundreds of billions.
  In 1989, the New York Times reported that financial institutions in 
the Cayman Islands, Luxembourg, and the Bahamas had $240 billion, $200 
billion, and $180 billion, respectively, on deposit from the United 
States. (New York Times, October 29, 1989, pg. 10.) More recently, 
Barron's estimated that a total of $440 billion was on deposit in the 
Cayman Islands in 1993, with 60 percent of that amount--$264 billion--
coming from the United States. (Barron's, January 4, 1993, pg. 14.) To 
put this in some perspective, Barron's calculated that there was more 
American money on deposit in the Cayman Islands than in all of the 
commercial banks in California. Although only a portion of U.S. funds 
abroad are held in foreign trusts, the Treasury Department estimates 
that tens of billions of dollars are held in offshore asset protection 
trusts established by U.S. persons.
  Undoubtedly motivations behind establishing offshore accounts vary, 
and tax advantages may pale in comparison to the ability to protect 
assets from U.S. tort or other liabilities. Whatever the initial 
motivation for moving assets offshore, however, it seems clear that a 
very large portion of the assets soon disappear insofar as U.S. tax 
reporting is concerned. The result is rampant tax avoidance. Because 
tax haven jurisdictions typically have bank secrecy laws, the IRS is 
effectively precluded from uncovering the information necessary to 
enforce our tax laws. Tax enforcement is almost entirely dependent upon 
voluntary reporting by taxpayers, and the evidence is clear that 
voluntary compliance in this area is lacking.
  Something must be done, and the intent behind this bill is to end the 
ease with which taxpayers can reduce their tax bills by legally or 
illegally taking advantage of existing foreign trust rules.
  Over the past several months I have received extensive comments from 
practitioners and academics concerning the administration's original 
foreign trust proposals and possible alternatives. These comments have 
been very useful. I would like to thank in particular the tax section 
of the New York State Bar Association for their detailed analysis. A 
tremendous amount of work went into their submission, prepared on 
request and within a very short period of time.
  The bill I introduce today is substantially revised from the original 
administration bill--S. 453--to reflect many of the comments received. 
It has been developed over the last few months in cooperation with my 
counterpart on the Ways and Means Committee, Congressman Gibbons, who 
has been unwavering in his efforts to improve tax compliance in the 
foreign area. I have also worked with the Treasury Department to 
develop rules that adequately address the needs for effective tax 
administration.
  There are a number of aspects to this legislation. The provisions 
designed to enable the IRS to obtain better information on foreign 
trusts are perhaps the most significant. The bill would substantially 
strengthen the current information reporting rules on transfers to, and 
annual operations of, foreign trusts. Among other changes, the bill 
includes new rules designed to lead most foreign trusts established by 
U.S. persons to appoint a U.S. agent that can provide trust information 
to the IRS. In addition, the recipients of monies from foreign trusts 
would be required to report amounts received. Penalties for failure to 
comply with reporting requirements would be raised so that they have 
genuine deterrent effect--as contrasted to the nominal penalties of 
current law.

  The bill would also close a number of loopholes in the existing 
grantor trust tax rules, a series of rules that specify when the 
existence of a trust will be ignored for tax purposes because the 
creator of the trust retains sufficient control over the assets 
transferred to be appropriately treated as continuing to own the 
assets. For example, a foreign person--generally not taxable in the 
United States--transferring assets to a trust for the benefit of U.S. 
persons generally would not be treated as the tax owner of the assets 
in the trust unless the trust was fully revocable. Instead, the U.S. 
beneficiary receiving income from the trust would be taxed on receipt 
of that income.
  The ability to manipulate other foreign trust rules also would be 
curbed. A U.S. beneficiary's use of property of a foreign trust would 
be treated as the receipt of a distribution from the trust, taxable to 
the beneficiary. In addition, a U.S. beneficiary receiving a 
distribution from a foreign trust's accumulated income would be charged 
a market rate of interest on taxes due--on a prospective basis--rather 
than the currently prescribed 6 percent simple interest.
  Finally, the bill includes rules to provide greater certainty as to 
the classification of a trust as foreign or domestic. Under current 
law, there is considerable uncertainty on this issue because the 
determination is based on all relevant facts.
  A more comprehensive description of the bill, and of the major 
differences between the legislation that I introduce today and the 
original administration proposal, has been prepared. I ask unanimous 
consent that this summary, together with the bill, be placed in the 
Record at the conclusion of my remarks.
  Mr. President, I believe this legislation represents a balanced 
approach to the problem of tax avoidance through the use of foreign 
trusts, and a significant improvement over the administration's initial 
legislative proposal. There should be an opportunity to act this year 
to end the use of foreign trusts to avoid U.S. taxes. I look forward to 
continuing this effort.
  Mr. President, I ask unanimous consent that the text of the bill and 
additional material be printed in the Record.
  There being no objection, the bill was ordereed to be printed in the 
Record, as follows:

                                S. 1261

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Foreign Trust Tax Compliance 
     Act of 1995''.

     SEC. 2. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

       (a) In General.--Section 6048 of the Internal Revenue Code 
     of 1986 (relating to returns as to certain foreign trusts) is 
     amended to read as follows:

     ``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN 
                   TRUSTS.

       ``(a) Notice of Certain Events.--
       ``(1) General rule.--On or before the 90th day (or such 
     later day as the Secretary may prescribe) after any 
     reportable event, the responsible party shall provide written 
     notice of such event to the Secretary in accordance with 
     paragraph (2).
       ``(2) Contents of notice.--The notice required by paragraph 
     (1) shall contain such information as the Secretary may 
     prescribe, including--
       ``(A) the amount of money or other property (if any) 
     transferred to the trust in connection with the reportable 
     event, and

[[Page S13860]]

       ``(B) the identity of the trust and of each trustee and 
     beneficiary (or class of beneficiaries) of the trust.
       ``(3) Reportable event.--For purposes of this subsection--
       ``(A) In general.--The term `reportable event' means--
       ``(i) the creation of any foreign trust by a United States 
     person,
       ``(ii) the transfer of any money or property (directly or 
     indirectly) to a foreign trust by a United States person, 
     including a transfer by reason of death, and
       ``(iii) the death of a citizen or resident of the United 
     States if--

       ``(I) the decedent was treated as the owner of any portion 
     of a foreign trust under the rules of subpart E of part I of 
     subchapter J of chapter 1, or
       ``(II) any portion of a foreign trust was included in the 
     gross estate of the decedent.

       ``(B) Exceptions.--
       ``(i) Fair market value sales.--Subparagraph (A)(ii) shall 
     not apply to any transfer of property to a trust in exchange 
     for consideration of at least the fair market value of the 
     transferred property. For purposes of the preceding sentence, 
     consideration other than cash shall be taken into account at 
     its fair market value and the rules of section 679(a)(3) 
     shall apply.
       ``(ii) Pension and charitable trusts.--Subparagraph (A) 
     shall not apply with respect to a trust which is--

       ``(I) described in section 404(a)(4) or 404A, or
       ``(II) determined by the Secretary to be described in 
     section 501(c)(3).

       ``(4) Responsible party.--For purposes of this subsection, 
     the term `responsible party' means--
       ``(A) the grantor in the case of the creation of an inter 
     vivos trust,
       ``(B) the transferor in the case of a reportable event 
     described in paragraph (3)(A)(ii) other than a transfer by 
     reason of death, and
       ``(C) the executor of the decedent's estate in any other 
     case.
       ``(b) United States Grantor of Foreign Trust.--
       ``(1) In general.--If, at any time during any taxable year 
     of a United States person, such person is treated as the 
     owner of any portion of a foreign trust under the rules of 
     subpart E of part I of subchapter J of chapter 1, such person 
     shall be responsible to ensure that--
       ``(A) such trust makes a return for such year which sets 
     forth a full and complete accounting of all trust activities 
     and operations for the year, the name of the United States 
     agent for such trust, and such other information as the 
     Secretary may prescribe, and
       ``(B) such trust furnishes such information as the 
     Secretary may prescribe to each United States person (i) who 
     is treated as the owner of any portion of such trust or (ii) 
     who receives (directly or indirectly) any distribution from 
     the trust.
       ``(2) Trusts not having united states agent.--
       ``(A) In general.--If the rules of this subsection apply to 
     any foreign trust, the determination of amounts required to 
     be taken into account with respect to such trust by a United 
     States person under the rules of subpart E of part I of 
     subchapter J of chapter 1 shall be determined by the 
     Secretary in the Secretary's sole discretion from the 
     Secretary's own knowledge or from such information as the 
     Secretary may obtain through testimony or otherwise.
       ``(B) United states agent required.--The rules of this 
     subsection shall apply to any foreign trust to which 
     paragraph (1) applies unless such trust agrees (in such 
     manner, subject to such conditions, and at such time as the 
     Secretary shall prescribe) to authorize a United States 
     person to act as such trust's limited agent solely for 
     purposes of applying sections 7602, 7603, and 7604 with 
     respect to--
       ``(i) any request by the Secretary to examine records or 
     produce testimony related to the proper treatment of amounts 
     required to be taken into account under the rules referred to 
     in subparagraph (A), or
       ``(ii) any summons by the Secretary for such records or 
     testimony.
     The appearance of persons or production of records by reason 
     of a United States person being such an agent shall not 
     subject such persons or records to legal process for any 
     purpose other than determining the correct treatment under 
     this title of the amounts required to be taken into account 
     under the rules referred to in subparagraph (A). A foreign 
     trust which appoints an agent described in this subparagraph 
     shall not be considered to have an office or a permanent 
     establishment in the United States, or to be engaged in a 
     trade or business in the United States, solely because of the 
     activities of such agent pursuant to this subsection.
       ``(C) Other rules to apply.--Rules similar to the rules of 
     paragraphs (2) and (4) of section 6038A(e) shall apply for 
     purposes of this paragraph.
       ``(c) Reporting by United States Beneficiaries of Foreign 
     Trusts.--
       ``(1) In general.--If any United States person receives 
     (directly or indirectly) during any taxable year of such 
     person any distribution from a foreign trust, such person 
     shall make a return with respect to such trust for such year 
     which includes--
       ``(A) the name of such trust,
       ``(B) the aggregate amount of the distributions so received 
     from such trust during such taxable year, and
       ``(C) such other information as the Secretary may 
     prescribe.
       ``(2) Inclusion in income if records not provided.--If 
     adequate records are not provided to the Secretary to 
     determine the proper treatment of any distribution from a 
     foreign trust, such distribution shall be treated as an 
     accumulation distribution includible in the gross income of 
     the distributee under chapter 1. To the extent provided in 
     regulations, the preceding sentence shall not apply if the 
     foreign trust elects to be subject to rules similar to the 
     rules of subsection (b)(2)(B).
       ``(d) Special Rules.--
       ``(1) Determination of whether united states person 
     receives distribution.--For purposes of this section, in 
     determining whether a United States person receives a 
     distribution from a foreign trust, the fact that a portion of 
     such trust is treated as owned by another person under the 
     rules of subpart E of part I of subchapter J of chapter 1 
     shall be disregarded.
       ``(2) Domestic trusts with foreign activities.--To the 
     extent provided in regulations, a trust which is a United 
     States person shall be treated as a foreign trust for 
     purposes of this section and section 6677 if such trust has 
     substantial activities, or holds substantial property, 
     outside the United States.
       ``(3) Time and manner of filing information.--Any notice or 
     return required under this section shall be made at such time 
     and in such manner as the Secretary shall prescribe.
       ``(4) Modification of return requirements.--The Secretary 
     is authorized to suspend or modify any requirement of this 
     section if the Secretary determines that the United States 
     has no significant tax interest in obtaining the required 
     information.''
       (b) Increased Penalties.--Section 6677 of such Code 
     (relating to failure to file information returns with respect 
     to certain foreign trusts) is amended to read as follows:

     ``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO 
                   CERTAIN FOREIGN TRUSTS.

       ``(a) Civil Penalty.--In addition to any criminal penalty 
     provided by law, if any notice or return required to be filed 
     by section 6048--
       ``(1) is not filed on or before the time provided in such 
     section, or
       ``(2) does not include all the information required 
     pursuant to such section or includes incorrect information,
     the person required to file such notice or return shall pay a 
     penalty equal to 35 percent of the gross reportable amount. 
     If any failure described in the preceding sentence continues 
     for more than 90 days after the day on which the Secretary 
     mails notice of such failure to the person required to pay 
     such penalty, such person shall pay a penalty (in addition to 
     the amount determined under the preceding sentence) of 
     $10,000 for each 30-day period (or fraction thereof) during 
     which such failure continues after the expiration of such 90-
     day period.
       ``(b) Special Rules for Returns Under section 6048(b).--In 
     the case of a return required under section 6048(b)--
       ``(1) the United States person referred to in such section 
     shall be liable for the penalty imposed by subsection (a), 
     and
       ``(2) subsection (a) shall be applied by substituting `5 
     percent' for `35 percent'.
       ``(c) Gross Reportable Amount.--For purposes of subsection 
     (a), the term `gross reportable amount' means--
       ``(1) the gross value of the property involved in the event 
     (determined as of the date of the event) in the case of a 
     failure relating to section 6048(a),
       ``(2) the gross value of the portion of the trust's assets 
     at the close of the year treated as owned by the United 
     States person in the case of a failure relating to section 
     6048(b)(1), and
       ``(3) the gross amount of the distributions in the case of 
     a failure relating to section 6048(c).
       ``(d) Reasonable Cause Exception.--No penalty shall be 
     imposed by this section on any failure which is shown to be 
     due to reasonable cause and not due to willful neglect. The 
     fact that a foreign jurisdiction would impose a civil or 
     criminal penalty on the taxpayer (or any other person) for 
     disclosing the required information is not reasonable cause.
       ``(e) Deficiency Procedures Not To Apply.--Subchapter B of 
     chapter 63 (relating to deficiency procedures for income, 
     estate, gift, and certain excise taxes) shall not apply in 
     respect of the assessment or collection of any penalty 
     imposed by subsection (a).''
       (c) Conforming Amendments.--
       (1) Paragraph (2) of section 6724(d) of such Code is 
     amended by striking ``or'' at the end of subparagraph (S), by 
     striking the period at the end of subparagraph (T) and 
     inserting ``, or'', and by inserting after subparagraph (T) 
     the following new subparagraph:
       ``(U) section 6048(b)(1)(B) (relating to foreign trust 
     reporting requirements).''
       (2) The table of sections for subpart B of part III of 
     subchapter A of chapter 61 is of such Code amended by 
     striking the item relating to section 6048 and inserting the 
     following new item:
``Sec. 6048. Information with respect to certain foreign trusts.''
       (3) The table of sections for part I of subchapter B of 
     chapter 68 of such Code is amended by striking the item 
     relating to section 6677 and inserting the following new 
     item:
``Sec. 6677. Failure to file information with respect to certain 
              foreign trusts.''

[[Page S13861]]

       (d) Effective Dates.--
       (1) Reportable events.--To the extent related to subsection 
     (a) of section 6048 of the Internal Revenue Code of 1986, as 
     amended by this section, the amendments made by this section 
     shall apply to reportable events (as defined in such section 
     6048) occurring after the date of the enactment of this Act.
       (2) Grantor trust reporting.--To the extent related to 
     subsection (b) of such section 6048, the amendments made by 
     this section shall apply to taxable years of United States 
     persons beginning after the date of the enactment of this 
     Act.
       (3) Reporting by united states beneficiaries.--To the 
     extent related to subsection (c) of such section 6048, the 
     amendments made by this section shall apply to distributions 
     received after the date of the enactment of this Act.

     SEC. 3. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS 
                   HAVING ONE OR MORE UNITED STATES BENEFICIARIES.

       (a) Treatment of Trust Obligations, Etc.--
       (1) Paragraph (2) of section 679(a) of the Internal Revenue 
     Code of 1986 is amended by striking subparagraph (B) and 
     inserting the following:
       ``(B) Transfers at fair market value.--To any transfer of 
     property to a trust in exchange for consideration of at least 
     the fair market value of the transferred property. For 
     purposes of the preceding sentence, consideration other than 
     cash shall be taken into account at its fair market value.''
       (2) Subsection (a) of section 679 of such Code (relating to 
     foreign trusts having one or more United States 
     beneficiaries) is amended by adding at the end the following 
     new paragraph:
       ``(3) Certain obligations not taken into account under fair 
     market value exception.--
       ``(A) In general.--In determining whether paragraph (2)(B) 
     applies to any transfer by a person described in clause (ii) 
     or (iii) of subparagraph (C), there shall not be taken into 
     account--
       ``(i) any obligation of a person described in subparagraph 
     (C), and
       ``(ii) to the extent provided in regulations, any 
     obligation which is guaranteed by a person described in 
     subparagraph (C).
       ``(B) Treatment of principal payments on obligation.--
     Principal payments by the trust on any obligation referred to 
     in subparagraph (A) shall be taken into account on and after 
     the date of the payment in determining the portion of the 
     trust attributable to the property transferred.
       ``(C) Persons described.--The persons described in this 
     subparagraph are--
       ``(i) the trust,
       ``(ii) any grantor or beneficiary of the trust, and
       ``(iii) any person who is related (within the meaning of 
     section 643(i)(3)) to any grantor or beneficiary of the 
     trust.''
       (b) Exemption of Transfers to Charitable Trusts.--
     Subsection (a) of section 679 of such Code is amended by 
     striking ``section 404(a)(4) or 404A'' and inserting 
     ``section 6048(a)(3)(B)(ii)''.
       (c) Other Modifications.--Subsection (a) of section 679 of 
     such Code is amended by adding at the end the following new 
     paragraphs:
       ``(4) Special rules applicable to foreign grantor who later 
     becomes a united states person.--
       ``(A) In general.--If a nonresident alien individual has a 
     residency starting date within 5 years after directly or 
     indirectly transferring property to a foreign trust, this 
     section and section 6048 shall be applied as if such 
     individual transferred to such trust on the residency 
     starting date an amount equal to the portion of such trust 
     attributable to the property transferred by such individual 
     to such trust in such transfer.
       ``(B) Treatment of undistributed income.--For purposes of 
     this section, undistributed net income for periods before 
     such individual's residency starting date shall be taken into 
     account in determining the portion of the trust which is 
     attributable to property transferred by such individual to 
     such trust but shall not otherwise be taken into account.
       ``(C) Residency starting date.--For purposes of this 
     paragraph, an individual's residency starting date is the 
     residency starting date determined under section 
     7701(b)(2)(A).
       ``(5) Outbound trust migrations.--If--
       ``(A) an individual who is a citizen or resident of the 
     United States transferred property to a trust which was not a 
     foreign trust, and
       ``(B) such trust becomes a foreign trust while such 
     individual is alive,
     then this section and section 6048 shall be applied as if 
     such individual transferred to such trust on the date such 
     trust becomes a foreign trust an amount equal to the portion 
     of such trust attributable to the property previously 
     transferred by such individual to such trust. A rule similar 
     to the rule of paragraph (4)(B) shall apply for purposes of 
     this paragraph.''
       (d) Modifications Relating to Whether Trust Has United 
     States Beneficiaries.--Subsection (c) of section 679 of such 
     Code is amended by adding at the end the following new 
     paragraphs:
       ``(3) Certain united states beneficiaries disregarded.--A 
     beneficiary shall not be treated as a United States person in 
     applying this section with respect to any transfer of 
     property to foreign trust if such beneficiary first became a 
     United States person more than 5 years after the date of such 
     transfer.
       ``(4) Treatment of former united states persons.--To the 
     extent provided by the Secretary, for purposes of this 
     subsection, the term `United States person' includes any 
     person who was a United States person at any time during the 
     existence of the trust.''
       (e) Technical Amendment.--Subparagraph (A) of section 
     679(c)(2) is amended to read as follows:
       ``(A) in the case of a foreign corporation, such 
     corporation is a controlled foreign corporation (as defined 
     in section 957(a)),''.
       (f) Regulations.--Section 679 is amended by adding at the 
     end the following new subsection:
       ``(d) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''
       (g) Effective Date.--The amendments made by this section 
     shall apply to transfers of property after February 6, 1995.

     SEC. 4. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER 
                   GRANTOR TRUST RULES.

       (a) General Rule.--
       (1) Subsection (f) of section 672 of the Internal Revenue 
     Code of 1986 (relating to special rule where grantor is 
     foreign person) is amended to read as follows:
       ``(f) Subpart Not To Result in Foreign Ownership.--
       ``(1) In general.--Notwithstanding any other provision of 
     this subpart, this subpart shall apply only to the extent 
     such application results in an amount being currently taken 
     into account (directly or through 1 or more entities) under 
     this chapter in computing the income of a citizen or resident 
     of the United States or a domestic corporation.
       ``(2) Exceptions.--
       ``(A) Certain revocable and irrecovable trusts.--
       ``(i) In general.--Except as provided in clause (ii), 
     paragraph (1) shall not apply to any trust if--

       ``(I) the power to revest absolutely in the grantor title 
     to the trust property is exercisable solely by the grantor 
     without the approval or consent of any other person or with 
     the consent of a related or subordinate party who is 
     subservient to the grantor, or
       ``(II) the only amounts distributable from such trust 
     (whether income or corpus) during the lifetime of the grantor 
     are amounts distributable to the grantor or the spouse of the 
     grantor.

       ``(ii) Exception.--Clause (i) shall not apply to any trust 
     which has a beneficiary who is a United States person to the 
     extent such beneficiary has made transfers of property by 
     gift (directly or indirectly) to a foreign person who is the 
     grantor of such trust. For purposes of the preceding 
     sentence, any gift shall not be taken into account to the 
     extent such gift is excluded from taxable gifts under section 
     2503(b).
       ``(B) Compensatory trusts.--Except as provided in 
     regulations, paragraph (1) shall not apply to any portion of 
     a trust distributions from which are taxable as compensation 
     for services rendered.
       ``(3) Special rules.--Except as otherwise provided in 
     regulations prescribed by the Secretary--
       ``(A) a controlled foreign corporation (as defined in 
     section 957) shall be treated as a domestic corporation for 
     purposes of paragraph (1), and
       ``(B) paragraph (1) shall not apply for purposes of 
     applying part III of subchapter G (relating to foreign 
     personal holding companies) and part VI of subchapter P 
     (relating to treatment of certain passive foreign investment 
     companies).
       ``(4) Recharacterization of purported gifts.--In the case 
     of any transfer directly or indirectly from a partnership or 
     foreign corporation which the transferee treats as a gift or 
     bequest, the Secretary may recharacterize such transfer in 
     such circumstances as the Secretary determines to be 
     appropriate to prevent the avoidance of the purposes of this 
     subsection.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection, including regulations 
     providing that paragraph (1) shall not apply in appropriate 
     cases.''
       (2) The last sentence of subsection (c) of section 672 of 
     such Code is amended by inserting ``subsection (f) and'' 
     before ``sections 674''.
       (b) Credit for Certain Taxes.--Paragraph (2) of section 
     665(d) of such Code is amended by adding at the end the 
     following new sentence: ``Under rules or regulations 
     prescribed by the Secretary, in the case of any foreign trust 
     of which the settlor or another person would be treated as 
     owner of any portion of the trust under subpart E but for 
     section 672(f), the term `taxes imposed on the trust' 
     includes the allocable amount of any income, war profits, and 
     excess profits taxes imposed by any foreign country or 
     possession of the United States on the settlor or such other 
     person in respect of trust gross income.''
       (c) Distributions by Certain Foreign Trusts Through 
     Nominees.--
       (1) Section 643 of such Code is amended by adding at the 
     end the following new subsection:
       ``(h) Distributions by Certain Foreign Trusts Through 
     Nominees.--For purposes of this part, any amount paid to a 
     United States person which is derived directly or indirectly 
     from a foreign trust of which the payor is not the grantor 
     shall be deemed in the year of payment to have been directly 

[[Page S13862]]
     paid by the foreign trust to such United States person.''
       (2) Section 665 of such Code is amended by striking 
     subsection (c).
       (d) Effective Date.--
       (1) In general.--Except as provided by paragraph (2), the 
     amendments made by this section shall take effect on the date 
     of the enactment of this Act.
       (2) Exception for certain trusts.--The amendments made by 
     this section shall not apply to any trust--
       (A) which is treated as owned by the grantor or another 
     person under section 676 or 677 (other than subsection (a)(3) 
     thereof) of the Internal Revenue Code of 1986, and
       (B) which is in existence on September 19, 1995.
     The preceding sentence shall not apply to the portion of any 
     such trust attributable to any transfer to such trust after 
     September 19, 1995.
       (e) Transitional Rule.--If--
       (1) by reason of the amendments made by this section, any 
     person other than a United States person ceases to be treated 
     as the owner of a portion of a domestic trust, and
       (2) before January 1, 1997, such trust becomes a foreign 
     trust, or the assets of such trust are transferred to a 
     foreign trust,
     no tax shall be imposed by section 1491 of the Internal 
     Revenue Code of 1986 by reason of such trust becoming a 
     foreign trust or the assets of such trust being transferred 
     to a foreign trust.

     SEC. 5. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

       (a) In General.--Subpart A of part III of subchapter A of 
     chapter 61 of the Internal Revenue Code of 1986 is amended by 
     inserting after section 6039E the following new section:

     ``SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN PERSONS.

       ``(a) In General.--If the value of the aggregate foreign 
     gifts received by a United States person (other than an 
     organization described in section 501(c) and exempt from tax 
     under section 501(a)) during any taxable year exceeds 
     $10,000, such United States person shall furnish (at such 
     time and in such manner as the Secretary shall prescribe) 
     such information as the Secretary may prescribe regarding 
     each foreign gift received during such year.
       ``(b) Foreign Gift.--For purposes of this section, the term 
     `foreign gift' means any amount received from a person other 
     than a United States person which the recipient treats as a 
     gift or bequest. Such term shall not include any qualified 
     transfer (within the meaning of section 2503(e)(2)).
       ``(c) Penalty For Failure To File Information.--
       ``(1) In general.--If a United States person fails to 
     furnish the information required by subsection (a) with 
     respect to any foreign gift within the time prescribed 
     therefor (including extensions)--
       ``(A) the tax consequences of the receipt of such gift 
     shall be determined by the Secretary in the Secretary's sole 
     discretion from the Secretary's own knowledge or from such 
     information as the Secretary may obtain through testimony or 
     otherwise, and
       ``(B) such United States person shall pay (upon notice and 
     demand by the Secretary and in the same manner as tax) an 
     amount equal to 5 percent of the amount of such foreign gift 
     for each month for which the failure continues (not to exceed 
     25 percent of such amount in the aggregate).
       ``(2) Reasonable cause exception.-- Paragraph (1) shall not 
     apply to any failure to report a foreign gift if the United 
     States person shows that the failure is due to reasonable 
     cause and not due to willful neglect.
       ``(d) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Clerical Amendment.--The table of sections for such 
     subpart is amended by inserting after the item relating to 
     section 6039E the following new item:
``Sec. 6039F. Notice of large gifts received from foreign persons.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received after the date of the 
     enactment of this Act in taxable years ending after such 
     date.

     SEC. 6. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS 
                   WHICH ARE NOT GRANTOR TRUSTS.

       (a) Modification of Interest Charge on Accumulation 
     Distributions.--Subsection (a) of section 668 of the Internal 
     Revenue Code of 1986 (relating to interest charge on 
     accumulation distributions from foreign trusts) is amended to 
     read as follows:
       ``(a) General Rule.--For purposes of the tax determined 
     under section 667(a)--
       ``(1) Interest determined using underpayment rates.--The 
     interest charge determined under this section with respect to 
     any distribution is the amount of interest which would be 
     determined on the partial tax computed under section 667(b) 
     for the period described in paragraph (2) using the rates and 
     the method under section 6621 applicable to underpayments of 
     tax.
       ``(2) Period.--For purposes of paragraph (1), the period 
     described in this paragraph is the period which begins on the 
     date which is the applicable number of years before the date 
     of the distribution and which ends on the date of the 
     distribution.
       ``(3) Applicable number of years.--For purposes of 
     paragraph (2)--
       ``(A) In general.--The applicable number of years with 
     respect to a distribution is the number determined by 
     dividing--
       ``(i) the sum of the products described in subparagraph (B) 
     with respect to each undistributed income year, by
       ``(ii) the aggregate undistributed net income.
     The quotient determined under the preceding sentence shall be 
     rounded under procedures prescribed by the Secretary.
       ``(B) Product described.--For purposes of subparagraph (A), 
     the product described in this subparagraph with respect to 
     any undistributed income year is the product of--
       ``(i) the undistributed net income for such year, and
       ``(ii) the sum of the number of taxable years between such 
     year and the taxable year of the distribution (counting in 
     each case the undistributed income year but not counting the 
     taxable year of the distribution).
       ``(4) Undistributed income year.--For purposes of this 
     subsection, the term `undistributed income year' means any 
     prior taxable year of the trust for which there is 
     undistributed net income, other than a taxable year during 
     all of which the beneficiary receiving the distribution was 
     not a citizen or resident of the United States.
       ``(5) Determination of undistributed net income.--
     Notwithstanding section 666, for purposes of this subsection, 
     an accumulation distribution from the trust shall be treated 
     as reducing proportionately the undistributed net income for 
     prior taxable years.
       ``(6) Periods before 1996.--Interest for the portion of the 
     period described in paragraph (2) which occurs before January 
     1, 1996, shall be determined--
       ``(A) by using an interest rate of 6 percent, and
       ``(B) without compounding until January 1, 1996.''
       (b) Abusive Transactions.--Section 643(a) of such Code is 
     amended by inserting after paragraph (6) the following new 
     paragraph:
       ``(7) Abusive transactions.--The Secretary shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of this part, including regulations to 
     prevent avoidance of such purposes.''
       (c) Treatment of Use of Trust Property.--
       (1) In general.--Section 643 of such Code (relating to 
     definitions applicable to subparts A, B, C, and D) is amended 
     by adding at the end the following new subsection:
       ``(i) Use of Foreign Trust Property.--For purposes of 
     subparts B, C, and D--
       ``(1) General rule.--If a foreign trust makes a loan of 
     cash or marketable securities directly or indirectly to--
       ``(A) any grantor or beneficiary of such trust who is a 
     United States person, or
       ``(B) any United States person not described in 
     subparagraph (A) who is related to such grantor or 
     beneficiary,
     the amount of such loan shall be treated as a distribution by 
     such trust to such grantor or beneficiary (as the case may 
     be).
       ``(2) Use of other property.--Except as provided in 
     regulations prescribed by the Secretary, any direct or 
     indirect use of trust property (other than cash or marketable 
     securities) by a person referred to in subparagraph (A) or 
     (B) of paragraph (1) shall be treated as a distribution to 
     the grantor or beneficiary (as the case may be) equal to the 
     fair market value of the use of such property. The Secretary 
     may prescribe regulations treating a loan guarantee by the 
     trust as a use of trust property equal to the value of the 
     guarantee.
       ``(3) Definitions and special rules.--For purposes of this 
     subsection--
       ``(A) Cash.--The term `cash' includes foreign currencies 
     and cash equivalents.
       ``(B) Related person.--
       ``(i) In general.--A person is related to another person if 
     the relationship between such persons would result in a 
     disallowance of losses under section 267 or 707(b). In 
     applying section 267 for purposes of the preceding sentence, 
     section 267(c)(4) shall be applied as if the family of an 
     individual includes the spouses of the members of the family.
       ``(ii) Allocation of use.--If any person described in 
     paragraph (1)(B) is related to more than one person, the 
     grantor or beneficiary to whom the treatment under this 
     subsection applies shall be determined under regulations 
     prescribed by the Secretary.
       ``(C) Exclusion of tax-exempts.--The term `United States 
     person' does not include any entity exempt from tax under 
     this chapter.
       ``(D) Trust not treated as simple trust.--Any trust which 
     is treated under this subsection as making a distribution 
     shall be treated as not described in section 651.
       ``(4) Subsequent transactions regarding loan principal.--If 
     any loan is taken into account under paragraph (1), any 
     subsequent transaction between the trust and the original 
     borrower regarding the principal of the loan (by way of 
     complete or partial repayment, satisfaction, cancellation, 
     discharge, or otherwise) shall be disregarded for purposes of 
     this title.''
       (2) Technical amendment.--Paragraph (8) of section 7872(f) 
     is amended by inserting ``, 643(i),'' before ``or 1274'' each 
     place it appears.
       (d) Effective Dates.--
       (1) Interest charge.--The amendment made by subsection (a) 
     shall apply to distributions after the date of the enactment 
     of this Act.

[[Page S13863]]

       (2) Abusive transactions.--The amendment made by subsection 
     (b) shall take effect on the date of the enactment of this 
     Act.
       (3) Use of trust property.--The amendment made by 
     subsection (c) shall apply to--
       (A) loans of cash or marketable securities after September 
     19, 1995, and
       (B) uses of other trust property after December 31, 1995.

     SEC. 7. RESIDENCE OF ESTATES AND TRUSTS, ETC.

       (a) Treatment as United States Person.--
       (1) In general.--Paragraph (30) of section 7701(a) of the 
     Internal Revenue Code of 1986 is amended by striking 
     subparagraph (D) and by inserting after subparagraph (C) the 
     following:
       ``(D) any estate or trust if--
       ``(i) a court within the United States is able to exercise 
     primary supervision over the administration of the estate or 
     trust, and
       ``(ii) in the case of a trust, one or more United States 
     fiduciaries have the authority to control all substantial 
     decisions of the trust.''
       (2) Conforming amendment.--Paragraph (31) of section 
     7701(a) of such Code is amended to read as follows:
       ``(31) Foreign estate or trust.--The term `foreign estate' 
     or `foreign trust' means any estate or trust other than an 
     estate or trust described in section 7701(a)(30)(D).''
       (3) Effective date.--The amendments made by this subsection 
     shall apply--
       (A) to taxable years beginning after December 31, 1996, or
       (B) at the election of the trustee of a trust, to taxable 
     years ending after the date of the enactment of this Act.
     Such an election, once made, shall be irrevocable.
       (b) Domestic Trusts Which Become Foreign Trusts.--
       (1) In general.--Section 1491 of such Code (relating to 
     imposition of tax on transfers to avoid income tax) is 
     amended by adding at the end the following new flush 
     sentence:
     ``If a trust which is not a foreign trust becomes a foreign 
     trust, such trust shall be treated for purposes of this 
     section as having transferred, immediately before becoming a 
     foreign trust, all of its assets to a foreign trust.''
       (2) Penalty.--Section 1494 of the Internal Revenue Code of 
     1986 is amended by adding at the end the following new 
     subsection:
       ``(c) Penalty.--In the case of any failure to file a return 
     required by the Secretary with respect to any transfer 
     described in section 1491, the person required to file such 
     return shall be liable for the penalties provided in section 
     6677 in the same manner as if such failure were a failure to 
     file a return under section 6048(a).''
       (3) Effective date.--The amendments made by this subsection 
     shall take effect on the date of the enactment of this Act.
                                                                    ____


                   Summary of Foreign Trust Proposals


                        I. INFORMATION REPORTING

                    A. Transferors to Foreign Trusts

       Current Law. U.S. persons are required to report transfers 
     of money or property to a foreign trust. Any person who fails 
     to file the required information is subject to a penalty of 5 
     percent of the amount transferred to the foreign trust, up to 
     a maximum of $1,000. A reasonable cause exception is 
     available.
       Reasons for Change. Existing penalties have not proven 
     adequate to encourage some U.S. taxpayers to report transfers 
     to foreign trusts. Information reporting of transfers to such 
     trusts is necessary to identify transactions subject to 
     existing excise taxes and to identify foreign trusts that 
     must be monitored in the future.
       Proposal. The proposal would increase the penalty for 
     failure to report a transfer to a foreign trust. The new 
     penalty would be 35 percent of the gross value of the 
     property transferred. In addition, monetary penalties could 
     be imposed for continuing noncompliance with IRS requests for 
     information. The reasonable cause exception is retained. The 
     proposal would be effective for transfers occurring after the 
     date of enactment.
       Differences from the Administration Proposal. The current 
     proposal is similar to the Administration proposal.

                   B. U.S. Grantors of Foreign Trusts

       Current Law. A U.S. grantor of a foreign trust is required 
     to provide an annual accounting of trust activities to the 
     IRS. Any person who fails to file the required information is 
     subject to a penalty of 5 percent of the value of the corpus 
     of the trust, up to a maximum of $1,000. A reasonable cause 
     exception is available.
       Reasons for Change. Existing information reporting rules 
     predate the significant expansion of the foreign grantor 
     trust rules in 1976. In general, penalties for noncompliance 
     with reporting requirements are minimal. As a result, U.S. 
     grantors of foreign trusts often do not report the income 
     earned by foreign trusts. Because these foreign trusts are 
     frequently established in tax haven jurisdictions with 
     stringent secrecy rules, IRS attempts to verify income earned 
     by foreign trusts are often unsuccessful. A regime which 
     allows the IRS access to information held by the foreign 
     trust is necessary to enforce existing law.
       Proposal. The proposal would require a U.S. grantor of a 
     foreign trust to cause the trust to (1) appoint a U.S. agent 
     that can provide relevant information to the IRS; and (2) 
     provide an annual accounting of trust activities, including 
     separate schedules (K-1s) for income attributable to the U.S. 
     grantor. If the foreign trust does not appoint a U.S. 
     agent, the IRS would be authorized to determine, in its 
     discretion, the tax consequences of any trust 
     transactions. The proposal would retain the existing 
     penalty for failure to file of 5 percent of the value of 
     the trust corpus, except that the penalty would no longer 
     be limited to $1,000. In addition, monetary penalties 
     could be imposed for continuing noncompliance with IRS 
     requests for information. The reasonable cause exception 
     is retained. The proposal would be effective for taxable 
     years of the U.S. grantor beginning after the date of 
     enactment.
       Differences from the Administration Proposal. The 
     Administration proposal would have allowed the IRS to 
     redetermine tax consequences if the trust did not appoint a 
     U.S. agent or if the trust did not file the required 
     information. The current proposal modifies the Administration 
     proposal by limiting the special IRS redetermination rule to 
     instances where the trust does not appoint a U.S. agent. The 
     Administration proposal would have imposed a monetary penalty 
     of 35 percent of trust income if either the agent were not 
     appointed or the information were not provided. The current 
     proposal modifies this penalty to 5 percent of trust assets, 
     and only imposes the penalty if the required information is 
     not reported.

                   C. Beneficiaries of Foreign Trusts

       Current Law. U.S. persons receiving distributions from 
     foreign nongrantor trusts are required to report them on 
     their U.S. income tax return. If distributions are not 
     reported, the U.S. person could be subject to general tax 
     penalties for failure to report taxable income. A reasonable 
     cause exception is available. U.S. persons receiving 
     distributions from a foreign grantor trust are not required 
     to report them to the IRS.
       Reasons for Change. Existing penalties have not proven 
     adequate to encourage some U.S. taxpayers to report 
     distributions from foreign nongrantor trusts. In addition, 
     requiring reporting of distributions from foreign grantor 
     trusts will allow the IRS to verify that the foreign trust is 
     a grantor trust.
       Proposal. The proposal would require a U.S. person 
     receiving money or property from a foreign trust, whether a 
     grantor trust or a nongrantor trust, to disclose the 
     distribution on the individual's Federal income tax return. 
     If a beneficiary does not disclose distributions or does not 
     have sufficient records to substantiate the tax treatment of 
     the distributions, then the distributions will be considered 
     distributions of accumulated income from the trust's average 
     year (the years the trust has been in existence divided by 
     two). If the beneficiary does not disclose distributions or 
     provides inaccurate information, a penalty equal to 35 
     percent of the trust distributions would be imposed upon the 
     beneficiary. In addition, monetary penalties could be imposed 
     for continuing noncompliance with IRS requests for 
     information. The reasonable cause exception is retained. It 
     is intended that the IRS respect the privacy of foreign 
     taxpayers to the extent consistent with the interests of tax 
     administration. This proposal would be effective with 
     respect to distributions received after the date of 
     enactment.
       Differences from the Administration Proposal. The 
     Administration proposal placed the responsibility of 
     reporting trust distributions on the trust. The current 
     proposal places that responsibility on the beneficiary.


                  ii. outbound foreign grantor trusts

       Under current law, a special rule applicable to foreign 
     trusts established by a U.S. person for the benefit of U.S. 
     persons provides that such trusts are generally ``grantor 
     trusts'', and the U.S. transferor is treated as the owner of 
     property transferred to the trust. The proposal revises 
     certain exceptions to this foreign grantor trust rule.

                       A. Sales to Foreign Trusts

       Current Law. Sales of property to a foreign trust at fair 
     market value are not transfers that are subject to the 
     foreign grantor trust rule.
       Reasons for Change. U.S. persons who transfer property to 
     foreign trusts sometimes attempt to inappropriately avoid the 
     foreign grantor trust rule by selling property to a foreign 
     trust in exchange for a note from the trust which the U.S. 
     transferor may not intend to collect. (If there is no bona 
     fide debt, these transactions are subject to challenge under 
     current law, because the exchange would not be at fair market 
     value.)
       Proposal. The proposal disregards any obligation issued or 
     guaranteed by the trust to any related person in determining 
     whether a sale to a foreign trust is for fair market value. 
     This proposal would be effective for assets transferred to 
     foreign trusts after February 6, 1995.
       Differences from the Administration Proposal. The 
     Administration proposal would have disregarded any trust 
     obligation issued or guaranteed by the trust to any U.S. 
     person. The current proposal only applies this rule to trust 
     obligations issued to related persons.

                        B. Pre-immigration Trust

       Current Law. The foreign grantor trust rule does not apply 
     to a foreign settlor who transfers property to a foreign 
     trust for the benefit of U.S. persons even if the settlor 
     later becomes a U.S. person.
       Reasons for Change. Prior to becoming residents of the 
     United States, foreign persons often put their assets into 
     irrevocable trusts in tax haven jurisdictions for the benefit 
     of U.S. persons. As a result, the future trust income escapes 
     U.S. tax until distribution. Thus, under current law, U.S. 
     persons 

[[Page S13864]]
     who have immigrated to the United States are able to avoid current 
     taxation of trust income in ways that are not available to 
     other U.S. persons.
       Proposal. If a foreign person transfers property to a 
     foreign trust with U.S. beneficiaries and the foreign person 
     then becomes a U.S. person within five years of the transfer, 
     the transferor would be treated as the owner of the trust 
     assets when he becomes a U.S. person. This proposal would be 
     effective for assets transferred to foreign trusts after 
     February 6, 1995.
       Differences from the Administration Proposal. The current 
     proposal is similar to the Administration proposal.

                      C. Outbound Trust Migrations

       Current Law. Although Revenue Ruling 91-6, 1991-1 C.B. 89, 
     describes the rules that must be applied when a foreign trust 
     becomes a domestic trust, current rules do not clearly 
     describe the tax consequences of a domestic trust becoming a 
     foreign trust.
       Reasons for Change. Outbound trust migrations are becoming 
     more common as tax haven jurisdictions enact legislation to 
     enable U.S. trusts to move to those jurisdictions. Rules 
     should be clarified to ensure that taxpayers will not be able 
     to achieve tax results through the outbound migration of a 
     domestic trust that they could not achieve directly by the 
     creation of a foreign trust.
       Proposal. If a domestic trust becomes a foreign trust 
     during the life of a U.S. person who transferred assets to 
     the domestic trust, the U.S. transferor will be considered 
     the grantor of the foreign trust. This proposal would 
     generally be effective for trust migrations after February 6, 
     1995.
       Differences from the Administration Proposal. Under the 
     Administration proposal, unless outbound trust migrations 
     were part of a prearranged plan, beneficiaries of the 
     migrating trust would be considered the grantors of the 
     trust. Under the current proposal, if a U.S. person who 
     transferred assets to a migrating trust is alive, that person 
     is considered the grantor of the trust. If the transferor is 
     not alive, a migrating trust is subject to the section 1491 
     excise tax (described below).

                          D. Other Provisions

       Transfers at Death. The Administration proposal would have 
     treated U.S. beneficiaries as grantors of foreign trusts 
     which were funded at the death of a U.S. person. The current 
     proposal does not include these provisions.
       Discretionary Beneficiaries. Because of changes to the 
     treatment of transfers at death and trust migrations, the 
     provisions in the Administration proposal relating to the 
     determination of a beneficiary's proportionate interests in 
     trusts are no longer necessary. The current proposal does not 
     include these provisions.


                  III. INBOUND FOREIGN GRANTOR TRUSTS

       Current Law. A person with certain powers over the trust 
     assets (the ``grantor'') is taxed as if he owned the trust 
     assets directly. This treatment is designed to prevent 
     attempts to shift income from U.S. grantors to U.S. 
     beneficiaries who are likely to be paying taxes at lower 
     rates than the grantor of the trust. Consequently, under 
     existing anti-abuse grantor trust rules, the grantor of such 
     a trust is taxed as if he owned the trust assets directly, 
     even if he retains only minimal economic connections with the 
     trust assets.
       Revenue Ruling 69-70, 1969-1 C.B. 182, provides that if a 
     foreign person is treated as the owner of a trust, a U.S. 
     beneficiary of that trust is not taxable on trust income 
     distributed to him.
       However, special rules in the Code modify the general 
     grantor trust rules where a U.S. beneficiary has made prior 
     gifts to a foreign grantor. In such a case, the U.S. 
     beneficiary is treated as the owner of the foreign trust 
     assets to the extent of the U.S. beneficiary's prior gifts to 
     the foreign grantor. The rule is designed to prevent wealthy 
     U.S. persons who have immigrated to the United States from 
     avoiding U.S. tax on their worldwide income. Prior to the 
     enactment of this rule, before moving to the United States 
     some immigrants transferred their assets to a foreign 
     relative, who then retransferred those assets to a foreign 
     trust for the benefit of the immigrant. Because the foreign 
     relative retained limited powers over the trust, the 
     immigrant treated the foreign relative as the owner of the 
     trust assets, and did not pay U.S. tax on trust 
     distributions.
       Reasons for Change. Existing law inappropriately permits 
     foreign taxpayers to affirmatively use the domestic anti-
     abuse grantor trust rules. Existing restrictions on the 
     ability of foreign taxpayers to use these rules are not 
     adequate to prevent U.S. beneficiaries, who enjoy the 
     benefits of United States citizenship or residency, from 
     avoiding U.S. tax on their income from trusts.
       Proposal. The grantor trust rules generally will only apply 
     to a trust if those rules would result in an amount being 
     included (directly or indirectly) in the gross income of a 
     U.S. citizen, domestic corporation, or a controlled foreign 
     corporation. The grantor trust rules would continue to apply 
     to trusts revocable by the grantor of the trust, to certain 
     compensatory trusts, and for purposes of applying the foreign 
     personal holding company rules and the passive foreign 
     investment company rules. It is intended that no inference 
     regarding the interpretation of present law be drawn from the 
     exclusion of certain trusts, including compensatory trusts, 
     from the application of the special rules of the proposal. 
     These rules are not intended to apply to normal security 
     arrangements involving a trustee (including the use of 
     indenture trustees and similar arrangements). The proposal 
     retains current rules regarding the treatment of U.S. 
     immigrants who made prior gifts to a foreign grantor.
       New rules would harmonize the treatment of purported gifts 
     by corporations and partnerships with the new foreign grantor 
     trust rules. In addition, U.S. persons would be required to 
     report the receipt of what they claim to be large gifts from 
     foreign persons in order to allow the IRS to verify that such 
     purported gifts are not in fact, disguised income to the U.S. 
     recipients.
       If a foreign trust that is a grantor trust under current 
     law becomes a nongrantor trust pursuant to this rule, the 
     trust would be treated as if it were resettled on the date 
     the trust becomes a nongrantor trust. Neither the grantor nor 
     the trust would recognize gain or loss. The section 1491 
     excise tax would not be applied to such a trust if the trust 
     migrates before December 31, 1996. Under special transition 
     rules, these rules would not apply to certain foreign trusts 
     where the foreign grantor retains substantial powers over the 
     trust assets, if those trusts were funded prior to September 
     19, 1995. Otherwise, this proposal would be effective on the 
     date of enactment.
       Differences from the Administration Proposal. The current 
     proposal modifies the Administration proposal by providing 
     exceptions for revocable trusts, controlled foreign 
     corporations, and compensatory trusts. The Administration 
     proposal did not contain the special transition rules 
     described above.


                     iv. foreign nongrantor trusts

                     A. Accumulation Distributions

       Current law. U.S. beneficiaries of foreign trusts are 
     subject to a nondeductible interest charge on distributions 
     of accumulated income earned by the trust in earlier taxable 
     years. The charge is based on the length of time during which 
     the tax was deferred because the accumulated income was not 
     distributed. Under existing law, the interest charge is equal 
     to 6 percent simple interest per year multiplied by the tax 
     imposed on the distribution. Accumulated income is deemed to 
     be distributed on a first-in, first-out basis. If adequate 
     records are not available to determine the portion of a 
     distribution that is accumulated income, the distribution is 
     deemed to be an accumulation distribution from the year that 
     the trust was organized.
       Reasons for Change. Current rules need to be revised to 
     eliminate U.S. tax incentives for accumulating income in 
     foreign trusts. Practitioners sometimes advise U.S. persons 
     to accumulate income trust because U.S. tax rules impose 
     interest at such a low rate (6 percent simple interest). 
     Thus, interest paid by U.S. beneficiaries of foreign 
     trusts should be modified to reflect market rates of 
     interest.
       However, current rules also need to be liberalized to tax 
     more appropriately distributions of accumulated income from 
     foreign trusts. Currently, a U.S. beneficiary pays an 
     interest charge on any distribution of accumulated trust 
     income as if the oldest trust earnings were distributed 
     first. The interest charge on such a distribution may be so 
     high as to discourage the U.S. beneficiary from receiving any 
     distributions from the trust. In addition, current rules 
     effectively require U.S. beneficiaries to obtain extensive 
     information about the foreign trust or, if information is not 
     obtained, pay a substantial interest charge based on the 
     assumption that all trust distributions were made from the 
     year that the trust was organized.
       Proposal. For periods of accumulation after December 31, 
     1995, the rate of interest charged on accumulation 
     distributions would correspond with the interest rate that 
     taxpayers pay on underpayments of tax.
       Distributions of accumulated trust income would be deemed 
     to come from a weighted average of the trust's accumulated 
     income. This calculation should be simpler than current law 
     because existing provisions require the taxpayer to maintain 
     separate pools of accumulated income for each year of the 
     trust. Under this weighted average method, the taxpayer would 
     only need to maintain a single pool of undistributed income.
       If information is not available regarding trust 
     distributions, distributions would generally be deemed to be 
     from income accumulated in the average year of the trust (the 
     years the trust has been in existence divided by two). If a 
     taxpayer is not able to demonstrate when the trust was 
     created, the IRS may use an approximation based on available 
     evidence.
       Taxpayers have used a variety of methods (e.g., tiered 
     trusts, divisions of trusts, mergers of trusts, and similar 
     transactions with corporations) to convert a distribution of 
     accumulated income into a distribution of current income or 
     corpus. The proposal would authorize the IRS to 
     recharacterize such transactions. Transactions that may be 
     entered into to avoid the interest charge on accumulation 
     distributions (e.g., excessive ``compensation'' paid to trust 
     beneficiaries who are directors of corporations owned by the 
     foreign trust) may be subject to recharacterization.
       The proposal also clarifies existing law by providing that 
     if an alien beneficiary of a foreign trust becomes a U.S. 
     resident and thereafter receives an accumulation 
     distribution, no interest would be charged during periods of 
     accumulation that predate U.S. residency. The proposal would 
     generally 

[[Page S13865]]
     be effective for distributions after the date of enactment.
       Differences from the Administration Proposal. The current 
     proposal is similar to the Administration proposal 
     liberalizes current law by imposing the interest charge based 
     on the weighted average life of the trust's accumulated 
     income instead of the trust's oldest undistributed income. 
     The current proposal also makes a corresponding change to the 
     treatment of trust distributions when information about the 
     trust is not available.

                     B. Constructive Distributions

       Current law. The tax consequences of the use of trust 
     assets by beneficiaries is ambiguous under present law. 
     Taxpayers may assert that a benefidiary's use of assets owned 
     by a trust does not constitute a distribution to the 
     beneficiary.
       Reasons for Change. If a corporation makes corporate assets 
     available for a shareholder's personal use (e.g., a corporate 
     apartment made available rent-free to a shareholder), the 
     fair market value of the use of that property is treated as a 
     constructive distribution. Further, if a controlled foreign 
     corporation makes a loan to a U.S. person, the loan is 
     treated as a deemed distribution by the foreign corporation 
     to its U.S. shareholders. The use of nongrantor foreign trust 
     assets by trust beneficiaries should give rise to tax 
     consequences that are similar to those associated with the 
     use of corporate assets by corporate shareholders.
       Proposal. If a U.S. beneficiary (or a U.S. related person) 
     uses assets of a nongrantor foreign trust, the value of that 
     use would be treated as income to the foreign trust which is 
     deemed distributed to the U.S. beneficiary. Thus, if a 
     nongrantor foreign trust made a residence available for use 
     by a U.S. beneficiary, the difference between the fair rental 
     value of the residence and any rent actually paid would be 
     treated as a constructive distribution to that beneficiary. 
     If a nongrantor foreign trust purported to loan cash or 
     marketable securities to a U.S. beneficiary, the loan 
     proceeds would be treated as a constructive distribution by 
     the foreign trust to the U.S. beneficiary. For this purpose, 
     an organization exempt from U.S. tax would not be considered 
     a U.S. person. It is intended that no inference be drawn from 
     the proposal as to the treatment under present law of the use 
     of trust assetss by beneficiaries and others. The provisions 
     would be effective for loans of cash or marketable securities 
     after September 19, 1995, and uses of other trust property 
     after December 31, 1995.
       Difference from the Administration Proposal. The current 
     proposal is similar to the Administration proposal.


                         V. RESIDENCE OF TRUSTS

                             A. Definition

       Current Law. Under current law, a ``foreign estate or 
     trust'' is an estate or trust the ``income of which, from 
     sources without the United States which is not 
     effectively connected with the conduct of a trade or 
     business within the United States, is not includible in 
     gross income under subtitle A'' of the Internal Revenue 
     Code. Section 7701(a)(31). This definition does not 
     provide criteria for determining when an estate or trust 
     is foreign.
       Court cases and rulings indicate that the residence of an 
     estate or trust depends on various factors, such as the 
     location of the assets, the country under whose laws the 
     estate or trust is created, the residence of the trustee, the 
     nationality of the decedent or settlor, the nationality of 
     the beneficiaries, and the location of the administration of 
     the trust. See e.g., B.W. Jones Trust v. Comm'r, 46 B.T.A. 
     531 (1942), aff'd, 132 F.2d 914 (4th Cir. 19543).
       Reasons for Change. Present rules provide insufficient 
     guidance for determining the residence of estates and trusts. 
     In addition, the increasing mobility of people and capital 
     make certain factors (e.g., nationality of the settlor or 
     beneficiaries, situs of assets) less relevant. Because the 
     tax treatment of an estate, trust, settlor or beneficiary may 
     depend on whether the estate or trust is foreign or domestic, 
     it is important to have an objective definition of the 
     residence of an estate or trust. Fewer factors for 
     determining the residence of estates or trusts would increase 
     the flexibility of grantors and trust administrators to 
     decide where to locate the trust and in what assets to 
     invest. For example, if the location of the administration of 
     the trust were no longer a relevant criterion, grantors of 
     foreign trusts would be able to choose whether to administer 
     the trusts in the United States or abroad based on nontax 
     considerations.
       Proposal. An estate or trust would be considered to be a 
     domestic estate or trust if two factors are present: (1) a 
     court within the United States is able to exercise primary 
     supervision over the administration of the estate or trust; 
     and (2) a U.S. fiduciary (alone or in concert with other U.S. 
     fiduciaries) has the authority to control decisions of the 
     estate or trust.
       The first factor is intended to refer to the court with 
     authority over the entire estate or trust, and not merely 
     jurisdiction over certain assets or a particular beneficiary. 
     Normally, the first factor would be satisfied if the trust 
     instrument is governed by the laws of a U.S. State. One way 
     to satisfy this factor is to register the estate or trust in 
     a State pursuant to a State law which is substantially 
     similar to Article VII of the Uniform Probate Code as 
     published by the American Law Institute. The second factor 
     would normally be satisfied if a majority of the fiduciaries 
     are U.S. persons and a foreign fiduciary (including a 
     ``protector'' or similar trust advisor) may not veto 
     important decisions of the U.S. fiduciaries. In applying this 
     factor, the IRS would allow an estate or trust a reasonable 
     period of time to adjust for inadvertent changes in 
     fiduciaries (e.g., a U.S. trustee dies or abruptly resigns 
     where a trust has two U.S. fiduciaries and one foreign 
     fiduciary).
       The new rules defining domestic estates and trusts would be 
     effective for taxable years of an estate or trust that begin 
     after December 31, 1996. The delayed effective date is 
     intended to allow an estate or trust a period of time to 
     conform its governing instrument or to change fiduciaries so 
     that the estate or trust may effectively elect to be treated 
     as domestic or foreign. However, trustees will be allowed to 
     elect to apply these rules for taxable years ending after the 
     date of enactment.
       Differences from the Administration Proposal. The current 
     proposal is similar to the Administration proposal.

                      B. Outbound Trust Migration

       Current Law. Under current law, a 35 percent excise tax is 
     imposed upon any appreciation in property that is transferred 
     by a U.S. person to a nongrantor foreign trust. A taxpayer 
     can avoid the excise tax by electing to pay income tax on any 
     appreciation in the transferred property. No excise tax is 
     imposed on transfers to foreign grantor trusts. Current law 
     is not clear as to whether the excise tax applies when a 
     nongrantor domestic trust changes its residence to become a 
     nongrantor foreign trust.
       Reasons for Change. The excise tax is designed to prevent 
     U.S. persons from transferring assets to a nongrantor foreign 
     trust without paying U.S. tax on the appreciation in those 
     assets. Taxpayers should not be able to achieve tax results 
     through migration of a domestic trust that they could not 
     achieve directly by the creation of a foreign trust.
       Proposal. The proposal would treat a nongrantor domestic 
     trust that becomes a nongrantor foreign trust as having 
     transferred, immediately before becoming a nongrantor foreign 
     trust, all of its assets to a foreign trust. The section 1491 
     excise tax would apply to this transfer. Penalties would be 
     imposed for failure to report any transaction subject to the 
     excise tax. The provisions would be effective on the date of 
     enactment.
       Differences from the Administration Proposal. Under the 
     Administration proposal, outbound migrations of trust with 
     U.S. beneficiaries would generally have been subject to the 
     foreign grantor trust rule, and the migrations would 
     therefore not have been subject to the excise tax. Because 
     the current proposal limits the application of the foreign 
     grantor trust rule to certain outbound trust migrations, the 
     current proposal applies the excise tax to outbound trust 
     migrations that result in a nongrantor foreign trust.

                          ____________________